Interested parties, including Kris Wiluan, Pacific One, Advanti Pte, holding a combined 159,148,291 shares, have undertaken to subscribe for their entitlement to 39,787,073 warrants, and subscribe for excess warrants of up to 44,383,561 warrants not taken up by minority shareholders. Hence, there is no need to appoint an underwriter for the issue.
At end Mar ‘09, KS has total borrowings of $346 mln, Shareholders Funds of $400.9 mln and cash of $70.5 mln.
The stock surged 16 cents yesterday to $1.44. KS, which is closely linked to Indonesian businessman Kris Wiluan, has attracted the attention of many well known funds / institutional investors in the past, including:
Temasek, which got in in Jan 2006 via placement at 89 cents (unadjusted), and largely sold out by Apr ’06 at $2.61;
Legg Mason, which last sold 3 mln shares in July ’06 at $2, and which reduced its stake below 5%.
Dubai Transport, which first crossed the 5% mark in July ’08 with the purchase of 897,000 shares at $1.94 each. After further purchases through Dec ’08, it now owns 50.75 mln shares or 14.6%, with the last purchase at $1.025 each. Ezra Holdings, an associate company, whichsold 4.7 mln shares in 2004 and 5 mln in 2005, bringing the balance to 5 mln shares.
1. As investors continue with the love affair with companies that go for rights issues, either to reduce gearing, plan for future acquisitions or whatever, we believe a closer look into KS’ “real” reason for the warrant rights issue is necessary.
2. This will take us back to July 2007, when KS issued:
- 10 mln new shares to Stark Investments, a global alternative investment group, at $3.485 per share (unadjusted for the 2008 rights issue). Stark did not take up its entitlement to the rights issue last year, which lowered its stake below 5%.
- $97 mln worth of Zero coupon Convertible Bonds (CB), convertible at $3.825 (adjusted for the rights from $4.05), which means it is way under water, with the stock yesterday at $1.44. (Note: the “financial arrangement” between Sun Jiangrong and Stark had cost Sino-Environment dearly, with the share price collapsing from 29.5¢ to 8¢ in one day when trading resumed on Mar 12 ‘09 after news first broke. Sun is Chairman / CEO of Sino-Environment.)
3. Key point to note is that Stark has the right to force KS to redeem the CB early next August, the 3rd anniversary of the issue, at principal + interest, assuming 5.5% yield-to-maturity. This looks likely.
4. Recall how KS had diversified into rig ownership / operation in 2007, ie all their rigs were acquired at peak prices given how hot the offshore sector was then. This includes the Super M2 rig that KS commissioned in April 2007, at a cost of US$148 mln. (It is not clear if KS has negotiated a charter for it.)
5. While we do not cover KS, we would advise caution especially after the enthusiastic response to the rights issue.
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