China Merchants Holdings Pacific

[greengiraffe]

Quick glance on the following announcements by CM Pac will reveal the shrewed and patient deal making ability by the management team within a year:

Old deal: http://infopub.sgx.com/FileOpen/Acquisit...leID=57001

New deal: http://infopub.sgx.com/FileOpen/Acquisit...eID=306007

Old deal: consideration RMB 891m (adjusted for comparable concession life), net debt HK$1.94bn

New deal: RMB 697m, net debt HK$1.59bn

Difference - 21.8% cheaper in consideration, 18% less net debt absolute certainty in concession life. New shares issued as consideration @ $0.98 is 16.7% dearer than previously indicated price of $0.84 (ie less dilution should same amount of shares are issued)

DBS Vickers in the old analysis when the old deal was announced estimated a borrowing costs of 6.55% back then. Given that overall credit situation in China has deteriorated over the last 18 months, it is highly likely that borrowers with inferior credit ratings are likely to have paid higher interest rates in order to roll over their loans.

Simply assuming a tax rate of 20%, every 1% savings on the latest net debt of HK$1.59bn will lift Jiurui net earnings by HK$12.7m. Assuming a conservative 5% savings on interest simply due to CM Pac credit standing, Jiurui would easily enjoy a HK$63.6m uplift in net earnings.

In the short term at least until further details on the targeted company are revealed in the EGM circular, the market and analysts can only guess. In the meantime, the ongoing conversion of the in-the-money CB is likely to provide explanation of the seemingly "never-ending" supply of CMP shares (assuming there are actively traders arbitraging between the CB and the mother shares).

Vested
GG

Hi GG,
Thank you for the analysis, agree with you mostly but why is 5% saving on interest conservative? I thought 5% should be a very very optimistic assumption. Even if we assume a high interest rate of 7% and cmp is able to pull it down to 3%, it's only 4%. (And I consider a 4% savings optimistic). Unless u r assuming interest rate now is 8-9% and cmp can easily down it to 2-3%. I highly doubt the interest rate they are paying now are so sky high at 8-9%? If we can take Beilun refinance as a gauge, the interest rate was abt 6% to 2.6% for a 3+% savings.

Times have changed for highly leveraged high risks borrowers. If you recollect, Trust Loans almost equal to that of Ah Long rates - never say never especially when this is a key asset that borrower can collateralised for other risky ventures like property developments or commodities trading...

Certainly hope you are right about this!

Maybe we should cross check with YZJ's loan portfolio returns...