Eratat Lifestyle

(20-05-2013, 10:26 AM)Behappyalways Wrote: Why does a company with 'RMB $595m' cash balance as of 31/03/2013 and basically few debts need to issue a bond?

Its the same as asking why does a country with self proclaim huge reserves keep increasing its reserves via taxes and other means?
Country reply: Its meant to be used during raining days.

(21-05-2013, 12:43 PM)Bibi Wrote:

(20-05-2013, 10:26 AM)Behappyalways Wrote: Why does a company with 'RMB $595m' cash balance as of 31/03/2013 and basically few debts need to issue a bond?

Its the same as asking why does a country with self proclaim huge reserves keep increasing its reserves via taxes and other means?
Country reply: Its meant to be used during raining days.

some things to note. Our Nation Reserves generate returns (7.65 Billion). Hence it is not really cash reserves. It is more like cash+ Long term financial assets.

For eratat their cash are those in hand and in banks deposits which is only yielding 0.35% to 0.50% according to their AR 2012.

Sun Hung Kai is no small broker that you can be sure that any lending from Lee Sau Kee (known as the Warren Buffet of China) is not going to come easy.

But its a very small bet by SHK. Just may be they got institution hiding behind it as it is placed under Wealth management group. So unless these ppl are confident that whatever Eratat is executing in China, it might work.

But we are not at this stage even. The share is it undervalue base on 23cts cash or is it just overwhelm by S chip saga issue still?

No longer do ppl view absolute nos as reliable in S chip. There is just too many doubt? Or may be its opportunity - Dukang, SinoGrand had all rallied strongly, so why do we continue to doubt this SHK deal?

(21-05-2013, 12:59 PM)CY09 Wrote:

(21-05-2013, 12:43 PM)Bibi Wrote:

(20-05-2013, 10:26 AM)Behappyalways Wrote: Why does a company with 'RMB $595m' cash balance as of 31/03/2013 and basically few debts need to issue a bond?

Its the same as asking why does a country with self proclaim huge reserves keep increasing its reserves via taxes and other means?
Country reply: Its meant to be used during raining days.

some things to note. Our Nation Reserves generate returns (7.65 Billion). Hence it is not really cash reserves. It is more like cash+ Long term financial assets.

Doesnt matter to me even if they generate returns of 1 zillion from reserves. Because it wont be used unless during emergency as proclaimed by them.

a joker...12.5% interest while 'keeping' 'RMB595m' in bank......looks pretty desperate on cash with this kind of deal......

http://info.sgx.com/webcoranncatth.nsf/V...00049F195/$file/Eratat_Bonds-Warrants_announcement.pdf?openelement

(20-05-2013, 10:26 AM)Behappyalways Wrote: Why does a company with 'RMB $595m' cash balance as of 31/03/2013 and basically few debts need to issue a bond?

(Notice the 'RMB $595m')

http://info.sgx.com/webcoranncatth.nsf/V...C002470C6/$file/Results_Announcement_20130331_FINAL.pdf?openelement


http://info.sgx.com/webcoranncatth.nsf/V...0004C617D/$file/Eratat_2013.05.03_Proposed_Issue_of_Non-Convertible_Bonds_and_Warrants.pdf?openelement

Eratat, a cash rich company, issuing 2 year bonds at 12.5% per annum

Gee why did they not invite me in this fund raising exercise as well, I would be interested. It has better yields than the shares

their audit is sleeping....common sense would tell you.......

Speaking of the audit industry, companies of this size normally have 2-3 associate/senior associate checking this account (ranging 0-4 years experience). Then, they would have a partner who has at least 9 years in auditing to sign off the accounts.

Thus, I wonder has Moore Stephens auditors found really nothing wrong or they are just simply taking the annual audit fee with little intention of doing what auditors are paid to do.

Out of morbid curiousity I took a look at the bond/warrant issue.

Key Features

Principal is RMB 134m, but they are being issued for RMB 100.5m, i.e. 75% of par.

Interest is 12.5% per year, payable quarterly. Given the discount at issue, the real cash interest rate is 16.7%.

Including annual amortization of 15.3% annually (because the investor pays 75% but is repaid at par), the effective interest rate is in fact 30% per year.

Maturity is only 2 years.

Warrants' strike price is $0.25 so intrinsic value is zero, however with 2 years' life, time value is not zero so there is some value.

So what we have here is fundraising via a very short-term, very high-interest loan. Including the cost of the warrants, the effective interest rate is well in excess of 30%.

According to their 31 Mar 2013 balance sheet the company has cash amounting to 4x the amount they propose to raise. with no debt. In fact, cash is reported at RMB 545m against total liabilities of just RMB 48m. There appears to be excess cash of over RMB 500m. Even allowing for working capital, there is easily RMB 300m available. There is no need to raise the money at all.

One possible answer to this conundrum is that the company cannot actually access this cash at all. It may be pledged for various purposes, or it may simply not exist.

IMHO anyone buying into this bond/warrant issue should be prepared for a significant (even total) loss of their capital. Yes, the bonds are to be secured by Lin Jiancheng's 122m shares. But if the company doesn't redeem the bonds, the shares are not worth very much, are they?

At today's price of $0.135, 122m shares are worth $16m, less than the issue proceeds of $20.6m, so the bonds are not even fully covered. And if the bondholder seizes the 122m shares and tries to sell them on the open market, good luck trying to get "market price".

As usual, YMMV.

the warrant is an open invitation to short, much like the convertible bonds many s-chips had issued in 2007.