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08-08-2013, 10:41 PM
(This post was last modified: 08-08-2013, 10:45 PM by Greenrookie.)
(08-08-2013, 05:06 PM)Boon Wrote: On page 5 of 2Q2013 result statement,
Bond and Warrant Issue : “ On 20 June 2013, the Company entered into to a bond and warrant subscription agreement (the “Subscription Agreement”) with SHK Securities (Nominees) Limited (“SHKSN”),whereby the Company would issue to SHKSN (1) a redeemable 12.5% per annum nonconvertible bond with principal amount of RMB134.0 million (the “Bond”), and (2) 82.5 million warrants (the “Warrants”). The subscription price for the Bond and Warrants was RMB100.5 million (the “Subscription Price”). The Bond and Warrants were issued on 24 June 2013 and 8 July 2013 respectively (Please refer to the announcements made on 20 June, 6 July and 8 July 2013 for details).
As at 30 June 2013, the Subscription Price has been recognized as “Bond payable” in the Balance Sheet. In accordance with Financial Reporting Standards (“FRS”), the difference between the Bond principal amount and the Subscription Price of RMB33.5 million will be amortised over the 2-year Bond period. For the current quarter, RMB321,000 has been amortised in the profit and loss account.”
From the above statement, Eratat has treated the Subscription Price of Warrant as “zero” - which was in line with what d.o.g. had assumed.
Also, the difference between the Bond principal amount and the Subscription Price of RMB33.5 million will be amortised over the 2-year Bond period - which was consistent with what I had assumed.
Therefore, in so doing, Eratat has indirectly confirmed that “borrowing cost” for the issuance of “bond and warrant” equals to 32% gross (before tax deductibility) and around 24% (after tax deductibility), as worked out by d.o.g. and I in earlier postings.
Question remains : why ………………………………………………………..?
(Not Vested)
This expensive exercise will wipe 8 million off NP every quarter, the question if whether the expansion in shanghai can more than offset this amount.
Assuming no significant changes(since there no increase for years) in orders for the 12 existing distributors who altogether account for about 800 outlets (can't remember where i read this 800 outlets), and Eratat managed to get a new distributor for its Shanghai expansion, I think its quite prudent to see that the new distributor won't be opening more than 66 outlets over the 2 years. On av. each distributor contribute about 17.5 million per quarter of revenue, and the latest 1H margin of 15%(2Q margin is 12%), the distributor will add 2.6 million NP
I know the estimate is very rough, as the distributor might contribute above av. revenue, and also stocking up for opening will definitely be much much higher than renewal of stocks, but the above calculation will give some idea of the longer run profits possible.
Working backwards,with a NP margin of 15%, 20%, the revenue required to offset the 8 milllion financial cost will be 53 million, and 40 million in each quarter. That is about 1 quarter to 1/5 of the current revenue. Can the new distributors contribute that amount, even if margin is higher in Shanghai, I still think its a tall order, although not impossible.
If you believe Eratat can expand by more than 25% over the next 2 years, and in doing so, need more than 500 million (the cash they had before they conduct the exercise) , then everything will fall into place
But I am still skeptical even after reading the nextinsight article
http://www.nextinsight.net/index.php/sto...rant-issue
How can bank loans have costs higher than 24%?
my 2 cents worth only...
comments welcomed
