Tuesday, July 24, 2007

Ezra – Appointment of Independent Director Mr. Ngo Get Ping

Ezra had, on July 18, 2007, announced the appointment of Mr. Ngo Get Ping as their independent director. Dr Ngo, who is 48, has over 20 years of experience in the finance and stock-broking industry. He sits on the Board of SGX-listed Medi-Flex Limited as well as 2 Malaysian-listed companies Tiong Nam Logistics Holdings Bhd and OSK Holdings Bhd.

Mr. Lionel Lee, MD of Ezra, stated that the company places emphasis on good corporate governance as well as corporate transparency practices. With this I believe he means practicing good disclosure and for a company to have a press release for the appointment of a Group Finance Director (announced on July 12, 2007) as well as an independent director is a rare thing indeed. Not only that, but the company has also focused on the expertise and skill sets that the 2 new appointees will bring to the Group, in order to sharpen its competitive edge and allow it to learn and grow.

As Mr. Lee said, corporate transparency will become increasingly tough as the Group diversifies its business and incorporates more business segments/units into its principle activities. As the scale of operations grows, so does the need to keep shareholders like us informed of the myriad changes to the company; and what the Management is doing to grow the company. Management has shown that they are committed to keeping shareholders informed of the latest changes to the Group, which is commendable as I have always placed a premium on good governance and disclosure practices.

Swiber – Establishment of S$300 Million Multi-Currency Medium Term Note Programme

On July 20, 2007, Swiber announced the establishment (with the assistance of Citicorp Investment Bank (Singapore) Limited) of a S$300 Million Multi-Currency Medium Term Note Programme. Basically, this programme will allow the company to issue various types of notes, which constitutes a form of debt financing. The following are allowed to be issued by the company under this programme:-

Fixed, floating or variable interest rate notes in series or tranches – fixed interest rate notes have a built-in locked up interest rate which does not fluctuate according to the interest rate environment and SIBOR or LIBOR. Floating or variable rate notes may contain provisions which allow for the interest rate to fluctuate; this may be good or bad depending on the trend for interest rates (whether ascending or descending).

Hybrid Note or Zero-Coupon notes are also allowed to be issued. Zero-coupon notes have no interest fixed to them and thus are considered more “risky”, as investors need to have affirmation that the company is going to be solvent and able to pay off the notes. Swiber has to reduce the risk of default for note-holders in order to issue this class of notes.

Mr. Raymond Goh’s opinion is that Swiber is in “growth mode” now and thus he is aggressively pursuing all forms of financing in order to grow and expand Swiber’s fleet. So far, the company has made arrangements for a sale-and-leaseback (to be approved at the EGM to be held on July 31, 2007) and successfully concluded a private placement exercise of 55.35 million new shares to strategic institutional investors at S$2.1748 per share. This third form of financing (i.e. debt financing) effectively covers most of the methods which companies use to generate more cash inflows. The company’s aggressive plans has got me quite concerned as a shareholder though, as private placements means immediate dilution for existing shareholders, while the issuance of notes will mean higher finance (interest) costs in the Income Statement. All these measures are being under-taken with the assurance that “growing the fleet” will benefit the company in future years. As I mentioned before, this has yet to be proven as net margins for the company are still at a low 18.9% for 1Q 2007.

The effects of the three modes of financing are set out below:-

Sale and Leaseback – A financing scheme which results in an upfront large one-time cash inflow from the sale of vessels, “lightens” balance sheet as assets are not capitalized; large one-time exceptional gain recognized in the income statement, subsequent expenses impact on the Income Statement from monthly operating leases for the vessels

Private Placement – Also called Equity Financing. Involves the receipt of a large upfront cash inflow, net of placement agent and legal/professional fees. Effects are dilutive for shareholders and earnings per share, as the equity base of the company increases.

Issuance of Notes and/or bonds – Also called Debt Financing. Involves receipts of monies in exchange for the company taking on more liabilities (both current and long-term) in their balance sheet. Depending on the conditions stated in the bond agreements, may result in higher interest expenses for the company which directly impact the Income Statement.

The only mode of financing Swiber has not attempted (but which is popular with Chinese companies) is the issuance of convertible bonds (CB). CBs have both a potential dilutive effect as well as an immediate interest component; thus they are sort of an in-between for equity and debt financing.

It remains to be seen if Swiber’s moves can result in greater revenues, margins and earnings for the company; or whether it will help them to increase their visibility in order to clinch more contracts. I will remember to engage the CEO on this during the EGM.

Business Trip - Vietnam July 24, 2007 to July 27, 2007

To all readers, I shall be in Ho Chi Minh City during the above dates. Thus, I will probably blog only about once in 2 days, unless there is something really noteworthy for me to say. The usual reasons apply (much busier when overseas and poor internet connections) and I seek readers’ understanding on this. I shall be back to blog more about my investment mistakes, and will start to include mistakes of omission as well as commission.


Anonymous said...

Read Mr Ho Kwon Ping, Bayan Tree in ST Review - very insightful on capital finaning. Quote "My experience is that our faculties are most sharp and logical during a crisis, like a recession. But when we are inebriated by prosperity, out vision becomes blurred, our logic and discipline weaken and the gambler's motto - one more time - takes over"

Your concerns, to me is not unfounded, similar to Pacific Andes recent CBs, these are junk bond! But to me, concerns not converted to action is as good as nothing done. The bottom line is what would you do, wait, hold, sell? On PA, the records run back more than 7 profitable years, my entry price a low, and can't find better investments now, hence hold. Good luck my dear investor friend, on your swiber.

musicwhiz said...

Hi Anonymous,

A very sharp observation indeed regarding the junk bonds issue. Thanks for highlighting it. Assuming Swiber really does issue such low grade debt, obviously it does not bode well for the company. Seeing as things are the way they are now, with their fleet expansion plans coming up, I am inclined to hold first and adopt a wait and see attitude.

As I did mention, I will also engage the Management in a frank discussion on the senior notes issue during the EGM.

Meanwhile, if you have further thoughts on this and the debt market (I am still learning), please do contribute your comments. It's good for me to learn as well. Many thanks !