Wednesday, June 27, 2007

Swiber - Placement of 55,350,000 shares at S$2.1748 for Business Expansion

Swiber today announced a private placement of 55,350,000 shares (55.35 million) at S$2.1748 representing 15% of its current share capital base of 369 million shares to raise a total of S$120.38 million. The offer was managed by CIMB GK Goh and according to them, it was well-reecived with the offer being over-subscribed for. Some prominent investors include JF Asset Management. The enlarged share capital base is now 424,350,000 shares pending approval by SGX of the placement shares to be listed on the SGX.

Most shareholders will immediately recognize this move as being dilutive to existing shareholders, as the placement increased the share capital base of the company. Furthermore, some shareholders on forums have mentioned that the placement was done at a discount to market price of S$2.29 before the trading halt at 2 p.m. today.

To put things in perspective, this move may be dilutive to shareholdings but it may not necessarily be dilutive to earnings, as the company is utilizing S$77.4 million to fund the expansion of its vessel fleet. Recall that Mr. Raymond Goh (CEO of Swiber) mentioned just yesterday that the company was considering an equity fund-raising exercise to raise funds for business expansion; thus this news should not come as a big surprise as I had blogged about it just one day ago ! In fact, companies can only raise funds through either equity or debt. Equity create dilution but has no immediate impact to P&L, while debt increases interest expenses but does not impact EPS. However, one must focus more on the big picture, which is Swiber's aggressive plans to expand their fleet and conquer new markets.

With this new issue of shares, the fair value of Swiber needs to be recalculated. From my previous post, estimated net profit for FY 2007 is around S$49.57 million. Based on the new enlarged share capital, diluted EPS will be 11.68 Singapore cents per share (down from 13.4 singapore cents per share pre-dilution). Thus, applying a PER of 13 times yields a price of S$15.2 while a PER of 15x yields a price of S$1.75. On the surface, this would imply that at S$2.29, Swiber is 30% over-valued assuming a PER of 15x. However, by collating the positive factors about the company which I have discussed previously, intrinsic value is likely to be much higher than S$1.75 at this point. This is due to the following factors:-

1) The placement changes the fundamentals of the company in that it injects cash into the company to fund its expansion. Thus, in the short-term, operating cash flows may be negative as vessels are being constructed, but in the medium-term cash inflows will start to build up as the vessels are deployed to various locations to carry out their EPCIC activities. Under "Financing Activities" in the Cash Flow Statement, this large cash inflow will ensure there is a net cash inflow balance which should sustain operations and provide adequate working capital.

2) The CEO mentioned that only part of the capital was to be used for the vessel fleet expansion program. This would imply that the remainder could be used to finance other aspects of the business such as building up their networks in key countries which Swiber is targeting, and to do the ncessary due dilligence to ensure that investments are worth undertaking.

3) The intense interest in Swiber's placement (even at S$2.17, which is at about 16.2 times forward PER pre-dilution) would indicate that funds and other institutional investors have faith and confidence in the company's ability to deliver in future. Thus, they are willing to accept the risk of buying into Swiber at S$2.17 as they probably see more upside to its intrinsic value which will lower the forward PER post-dilution by increasing earnings substantially.

4) A private placement has to be done at a discount to market price in order to make it attractive to potential investors. Thus, S$2.17 can be seen as a "benchmark" price floor set by the institutional investors and they are thus valuing the entire company at about S$800 million (market capitalization) pre-dilution.

Shareholders who have confidence that the company can deliver should seize the opportunity to buy more of the company when weak holders sell down the following day.

Boustead - Acquisition of Combustion Technology Business in Australia

Boustead announced that it has acquired (for A$400,000 or S$520,000) the Maxitherm combustion technology business in Australia. The acquisition is in line with their strategy of consolidating their core competencies and beefing up their solid energy waste recovery systems expertise. The company had already acquired the intellectual property rights to the Maxitherm combustion technology through MBPL in 2003 and this move is a follow-up to ensure that the full range of activities can be provided to customers.

A new wholly owned-subsidiary, Boustead Maxitherm Boilers Pty Ltd, was set up in Australia to undertake the marketing and installation of the technology in Australia. This move by Boustead is positive as it sees the group slowly building up its capabilities in their 3 areas of waste recovery solutions, water and wastewater solutions and industrial real-estate solutions. Moving forward, Boustead will be bidding for more contracts in Vietnam which it hopes to clinch soon.

Pacific Andes - Rights Trading and Offer Information Statement (OIS)

For those who do not know, the OIS can be downloaded from the OPERA website (see my links on the sidebar) before the hard copy comes along to your household. Since I am in Vietnam, I have no choice but to read the 80-page soft copy which I am still going through ! The trading of the rights will commence tomorrow June 27th and the counter is named "Pac Andes R" representing the rights. Note that your can choose to sell your provisional allotment of nil-paid rights in the market which means that you do NOT have to pay the rights conversion price of S$0.52 per rights to convert to shares. However, this move will be dilutive to the seller as he now owns a proportionately lower amount of shares as a % of the enlarged share capital base of the company. Similarly, one can choose to buy the rights from the open market, assuming that they are priced at (Market Price of Pac Andes Mother Share - S$0.52), otherwise it would be better to purchase the mother share directly.

More details will be posted here once I get through the OIS, and I will be posting on how to apply for excess rights and how they will be alloted and paid for.


Anonymous said...

Any idea if the newly subscribed shares from the rights issue will be entitled to the proposed dividend?

musicwhiz said...


Yes it will be entitled as the date of the dividend has yet to be fixed. The dividend is 0.54 cents/share.