S-chips make a comeback in Singapore

I checked with my remisier and he said that placements are usually done at a discount. Otherwise the funds might as well buy from open market. Who would want to buy at a premium?

My conclusion is that end of the day, it all boils down to whether the company needs the additional capital/funds and how desperate they are!

(27-01-2011, 01:50 PM)ichiran Wrote: I checked with my remisier and he said that placements are usually done at a discount. Otherwise the funds might as well buy from open market. Who would want to buy at a premium?

My conclusion is that end of the day, it all boils down to whether the company needs the additional capital/funds and how desperate they are!

There has been instances of placement being done at a premium to the last traded share price. Here are a few examples which I recall -

China Animal Healthcare:

The Placement price of S$0.35 represents a 11.8% premium to the weighted average price for trades done on the SGX-ST for 1 July 2010.

http://info.sgx.com/webcoranncatth.nsf/V...5001741C5/$file/CAH_SGXNET_PressReleaseBlackstone_3Jul10.pdf?openelement

Treasury China Trust:

The new units will be issued at S$1.66 per unit, representing a 9.2% premium to the last trading price of S$1.52.

http://info.sgx.com/webcoranncatth.nsf/V...4008238EB/$file/TCT_Placement_Result.pdf?openelement

Jasper investment:

The Placement Price is derived by taking into account the weighted average of the Company’s existing number of issued shares at the closing price of S$0.06 of the Company’s shares traded on the SGX-ST on 21 December 2010 and the number of new shares to be issued for the capitalization of the Shareholder Loans at the Conversion Price. The Placement Price represents a premium of 60% over S$0.06, which was the volume weighted average price of the Company’s shares traded on the SGX-ST on 21 December 2010.

http://www.jasperinvests.com/files/2010/...uction.pdf

I guess there might be more examples haha ! I think this only occurs if the stock trading liquidity is low and the price is deemed to be attractive. So no choice - have to offer at a premium.

(Not Vested in any of those companies)

Nick-san,

Thanks! So based on these examples, companies such as Eratat has no reason to do placement at a discount?

(27-01-2011, 05:36 PM)ichiran Wrote: Nick-san,

Thanks! So based on these examples, companies such as Eratat has no reason to do placement at a discount?

If the company is doing placement as a discount, it implies that it is the one in the weaker bargaining position - it needs the cash. The question therefore is what reason does it need the cash for ? If they have a realistic growth plan and just need a cash injection to kick-start it, it may not be a bad idea. I didn't study China Eratat before so I cannot comment on the wisdom of the latest move. They might have some good ideas which attracted CMIA attention in the first place.

As a shareholder of China Minzhong, I am aware that CMIA has been selling its Minzhong shares in open market over the past quarter. I think they had some legal dispute within themselves (CMIA) - http://www.agri-biz.com/SingleNews.aspx?...ode=672680

I wonder what other S Chips do CMIA have ?

Sometimes, buying off the market might create a sudden surge in pricing due to lack of liquidity.

Companies which are highly profiled & profitable would also command a premium for their shares.

As per what Nick mentioned, Eratat is definitely in a weaker bargaining position to issue at a discount.

To have a strategic investor on board would also open up more doors for the company. It all depends on what they are actually planning to do. We can only hope that it isn't a facade.

CNBC had a commentary on Eratat a while back, highlighting it as a potential stock. It has established a dividend policy, insisted on retailers to take an active part in branding as well as shown itself to be nimble in the cut-throat industry.

Today's share price seems to indicated strong interest still. I queued overnight at 21.5c and failed to obtain. Opened at 22.5c and closed at 24c.

If anyone has done due diligence on the placees and their history, please share. I hope they are not another Andrew Barron Worden.

Still vested.

Eratat operates in a highly competitive landscape and one area of concern is their cash conversion cycle increasing from 104 days as at 31 Mar 10 to 126 days as at 30 Sep 10. This trend is likely to persist and their trade receivables should also be monitored as Eratat strives to motivate their distributors by owning the specialty shops through extending longer credit terms to them.

The only thing I like about them is their pro-active management of the business evident in their switch from sports to premium lifestyle wear.

If Eratat is in a net cash position and now trading at a significant discount to fair valuation, would carrying out a placement exercise at this point (notwithstanding the discount) imply that the management foresees more challenging times ahead?

I remember the management stressing that the the receivables are collectible and the company has had no bad debt for more than five years. Note: More than five years might mean that there was bad debt 5+ years ago.

According to their timeline.
1983 - Established as a shoe factory. Yangdai Footwear Factory.
Mid 1990s - Embarked on Eratat branding strategy.
1998 - Increased brand management, distribution channels, manufacturing efficiency.
2002 - Established sports apparel. Wang Lee Hom as brand ambassador.
End 2007- Listed on SGX.

As a business owner, I am inclined to extend credit terms to select retailers. It would however impede operating cash flow. The trade off has to be managed carefully. The company generated negative cash flow from operating activities during 6M 2010 due to extended credit terms.

In April 2010 this year, it was ranked No.2 among the 200 or so S-chips on the Governance and Transparency Index (GTI) published by The Business Times.

This would be its first placement since listing.

CMIA is a private equity firm, it isn't Berkshire Hathaway which means it is in simply because it believes that there is a potential for significant return on capital.

From Eratat's perspective, I believe that the placement is simply to generate awareness as well as to improve its cash flow position.

Still Vested. They have already given me approx 6% yield this year.

Quote:CMIA Capital looks to invest in S'pore SMEs
Mon, Apr 26, 2010
The Business Times

SINGAPORE - After years of cherry-picking China growth companies, private equity firm CMIA Capital Partners is now hoping to add Singapore companies into its basket.

The fund manager is expanding its geographical mandate to sniff out opportunities in Singapore's SME (small and medium enterprise) space.

Lee Chong Min, managing partner of CMIA Capital Partners told BT that he is looking for opportunities to co-invest with the government under the latter's Budget initiative this year to match private sector investments in SMEs. On his radar screen are local companies in the food and property sectors.

Click here to find out more!
'We have investors who asked us to seek opportunities in Singapore,' Mr Lee said in an interview. 'In China, we might see volatility while in Singapore, we are expecting a fairly stable environment, so there has been investor interest to find assets.'

Undaunted by a failed investment in FerroChina, CMIA is still on the lookout for new targets in China, where it perceives upside in the agriculture, healthcare and consumer sectors.

The fund manager plans to launch a China agricultural fund within a year and invest US$30 million into projects it has studied in the past six months.

Since 2003, CMIA has invested some US$600 million into more than 20 growth companies in China, delivering a gross internal rate of return (IRR) of above 54 per cent on invested capital.

Mr Lee told BT that over the next two years, CMIA hopes to list three portfolio companies ' two in China and one in Hong Kong ' and fully exit from two other private companies.

The latest company it brought to listing is China Minzhong, a Fujian vegetable producer that made a debut on the Singapore mainboard last week, paring CMIA's stake from 23.3 per cent to 15.5 per cent.

Four other S-chips it has invested in have yielded strong positive returns. CMIA has fully exited from Longcheer and now-privatised Midsouth, while keeping its stakes in C&O Pharmaceutical and Ying Li.

But tainting its report card are troubled S-chips Sino-Environment and FerroChina.

Though CMIA divested its stake in Sino-Environment way before troubles in the company set in, return on the capital was negative. The FerroChina shares that it obtained via a share swop became worthless when the company went into insolvency in late 2008.

However, Mr Lee attributed these missteps to 'a matter of timing'.

'If you ask me if FerroChina was a good investment when we bought in, I would tell you 'yes it was',' Mr Lee said. 'We made a big return on equity, especially at the early stage when the local banks were lending them money to build a big facility and to become a leading player in the galvanised steel industry.

'But from August 2008, it was no longer a good investment because the tide was changing and it was the time to get out of companies that were highly geared. Then the question is how much time do you know you have to get out' Did we know we only have one month''

FerroChina collapsed in October 2008 when its creditors refused to roll over its debts. The failed investment has also become a bone of contention between CMIA and CMIA China Fund II that was holding some of the shares.

Directors of Fund II are suing Mr Lee and CMIA in Singapore for alleged breach of fiduciary duties. CMIA and Mr Lee are counter-suing the directors for defamation and breach of investment management agreement, among other things.

Though the aggregate loss of US$10-15 million in FerroChina shares did not significantly impact CMIA or Fund II, which is still achieving an annualised returns of over 30 per cent, the legal tussle has made a dent in CMIA's deal-making.

CMIA had missed the window to raise a US$600 million China fund when the directors of Fund II started making broad allegations against Mr Lee to other CMIA investors.

'We have put in a lot of effort to clarify issues pertaining to the litigation with investors,' Mr Lee said. 'We have actually been very transparent.

'But as long as investors read newspapers or articles on the Internet that are sensational or speculative, they get worried,' he added. 'Instead of having a fair opportunity to present ourselves, now we have a group of investors who have closed their minds when they read the Internet or the newspapers. That's the reality.'

Thankfully, there are still 'serious investors' who are willing to scrutinise the merits of the lawsuit and continue to engage us, Mr Lee said.

He is also taking the lawsuit and allegations levelled against him in stride.

'What doesn't kill you make you stronger,' he said. 'As we work on the litigation issues, some of my partners take on bigger roles to alleviate the pressure ' which is good. I actually have more time for family and charity work,' he chuckled.

Quote:Commented Mr. Lin Jiancheng, Executive Chairman & CEO of Eratat Lifestyle, "CMIA is an established investor with extensive experience in investments in growing companies in China. We are honored and welcome CMIA onboard as one of our substantial shareholders, which is an endorsement to the ERATAT Brand and business expansion strategy. With our strategic partnership, I believe we will be able to bring Eratat Lifestyle to new heights of success."

Mr. Lee Chong Min, Managing Partner of CMIA, said "China's Apparel sector has grown rapidly over the past five years to emerge as the world's second largest apparels market. In particular, the lifestyle casual wear sector is expected to see strong growth as a result of the continued strength of the Chinese economy, increasing urbanization, growing affluence and rising disposable incomes of the population. These factors will drive demand for good quality and affordable lifestyle casual wear apparel, which is exactly the business focus of Eratat Lifestyle. We are confident of the prospects of the sector, the strength of the management of Eratat Lifestyle and its business strategies and look forward to working closely with Eratat Lifestyle to grow the business and bring Eratat Lifestyle to greater heights.

For info.

PACIFIC ANDES RESOURCES DEVELOPMENT LIMITED
(Incorporated in Bermuda with limited liability)
(the "Company")
_________________________________________________________________________
PROPOSED DUAL PRIMARY LISTING OF ALL OF THE SHARES OF CHINA FISHERY
GROUP LIMITED ON THE MAIN BOARD OF THE STOCK EXCHANGE OF HONG KONG
LIMITED (THE “PROPOSED SEHK LISTING”) - CLEARANCE AND IN-PRINCIPLE
APPROVAL FROM THE SGX-ST
_________________________________________________________________________
Reference is made to the Company's announcement on 17 December 2010 whereby the
Company announced, inter alia that China Fishery would submit an application to the SGXST
for, inter alia, in-principle approval for the listing of and permission to deal in all the
New Shares on the Main Board of the SGX-ST.
Unless otherwise defined, all capitalised terms used in this announcement shall bear the
same meanings as ascribed to them in the Company's announcement dated 17 December
2010.
The Board is pleased to announce that the SGX-ST has today given its in-principle approval
to China Fishery for the listing and quotation of all the New Shares on the Main Market of
SGX-ST, subject to:
(a) Compliance with the SGX-ST's listing requirements;
(b) Approval from the SEHK for the Proposed SEHK Listing; and
© Shareholders' approval for the Proposed SEHK Listing and for the proposed
placement of Offer Shares to CAP III-A Limited pursuant to Rule 812 of the SGX-ST
Listing Manual.
The SGX-ST's in-principle approval is not to be taken as an indication of the merits of the
Proposed SEHK Listing, the New Shares, China Fishery and/or its subsidiaries.
The SGX-ST has also on today given its clearance of the draft circular of China Fishery (the
"Circular") to be dispatched to the shareholders of China Fishery, to seek their approval,
inter alia, for the Proposed SEHK Listing, at the extraordinary general meeting of China
Fishery to be held.
The SGX-ST's clearance of the Circular does not imply that the Companies Act (Chapter 50)
of Singapore and any amendments thereof, or any other statutory requirements have been
complied with.
The SGX-ST assumes no responsibility for the correctness of any of the statements made,
opinions expressed or reports contained in the Circular.
In connection with the Proposed Global Offering, the price of the Shares may be
stabilized in accordance with the laws, rules and regulations in place in Hong
Kong and Singapore on stabilization including the Securities and Futures (Price
Stabilizing) Rules (Chapter 571W of the Laws of Hong Kong) and the Securities
and Futures (Market Conduct) (Exemptions) Regulations 2006 under the
Securities and Futures Act (Chapter 289 of Singapore). Details of any intended
stabilization and how it will be regulated under the applicable laws and regulatory
requirements of Hong Kong and Singapore will be contained in the prospectus
which is proposed to be issued by China Fishery in connection with the Proposed
Global Offering.
The Proposed SEHK Listing is subject to, among others, the approval of the Listing
Committee of the SEHK for the listing of, and permission to deal in, all the Shares
on the Main Board of the SEHK and the approvals of the shareholders of China
Fishery and Pacific Andes International Holdings Limited at their respective
extraordinary general meetings to be held. Accordingly, Shareholders and
potential investors of the Company should be aware that there is no assurance
that the Proposed SEHK Listing will take place or as to when it may take place.
Shareholders, warrant holders and other investors are reminded to exercise
caution when dealing in the Company's securities. In the event that shareholders,
warrant holders and other investors are in doubt when dealing in the Company's
securities, they should consult their stockbrokers, bank managers, solicitors,
accountants or other professional advisers.
This announcement is for information purpose only and does not constitute an
offer or an invitation to induce an offer by any person to acquire, purchase or
subscribe for the Shares.
Further, this announcement does not constitute nor form part of any offer or
invitation to sell, issue or subscribe for securities in the United States.
Securities may not be offered or sold in the United States absent registration
or an exemption from registration under the U.S. Securities Act of 1933, as
amended. Any public offering of securities to be made in the United States will
be made by means of a prospectus that may be obtained from China Fishery
and will contain detailed information relating to China Fishery and management
as well as financial statements. China Fishery does not intend to register any part
of the proposed offering in the United States. The New Shares described in this
announcement will be sold in accordance with all applicable laws and regulations.
No money, securities or other consideration is being solicited by this announcement
or the information contained herein and, if sent in response to this announcement
or the information contained herein, will not be accepted.
The Company will announce any material updates when appropriate.

For more information, please refer to the announcement released by China Fishery on the
SGXNET today.
By Order of the Board
Lynn Wan Tiew Leng
Company Secretary
Singapore
27 January 2011

There is another website that has been actively promoting S-Chips either by dressing up as news, or through forummers who seem to be very partial towards investing in S-Chips.

In my opinion, not all S-Chips (defined as China-Chinese management with assets mainly in China) are bad. As some has pointed out, the larger ones and those that are SOE-link have yet to give any troubles.

Those that have been giving trouble belong in the small cap space. Huge amount of cash per share, yet they still require constant fund raising. When their valuations were played up before the global financial crisis, such a plainly strong cash position would have been visible.

Personally, I do not like the idea that most of the S-Chips belong to industries that have low barriers of entry. So what if they are one of the largest manufacturers of XYZ in their region, relative market share matters. Textiles and shoemakers are just awful businesses to own. Just ask WB. He turned BH from a textile manufacturer to the great holding company that it is today.

I discriminate against S-Chips but I do own one or two. What I cannot stand is some of the publicity given by pseudo-analysts and "dis-interested" forums. nuff said

Agree with stock picker on S chips.
Too many of them operate in unattractive industries with low barriers, poor economics.
Any person with ample cash can set up the same business and take their customers away.
Most commodity-type business do not survive long.

We do not have to look far to find good business.
It is not a bad idea to own our local banks.
They do have home ground advantage in certain areas of finance they operate in and
I can't really see any new players.