GMG Global

[Musicwhiz]

Note: I am NOT vested.

Business Times - 30 Nov 2010

GMG Global takes over Thai rubber producer

By KAREN NG

RUBBER producer GMG Global and its Thai joint venture, GP Sentosa Enterprises, have agreed to buy 55 per cent of loss-making Teck Bee Hang (TBH), a Thailand-based rubber producer and trader.

GMG said yesterday that it would take a 49 per cent stake for 20,000 baht (S$874) while GP Sentosa, its 40 per cent associate company, will acquire 6 per cent for 10,000 baht.

The net asset value of TBH at end-December 2009 was negative 124.68 million baht. Net loss for the year ended 2009 came to 323.3 million baht.

To turn the Thai company around, GMG will lend TBH US$15 million as working capital, at interest of 5 per cent a year. This loan will be secured against TBH's stock-in-trade, in accordance with Thai law.

GMG will also lend US$32.5 million to GP Sentosa, which will use the money to restructure TBH's debts.

GMG said that the funds for the acquisition, totalling some S$62 million, comprises S$49 million from a renounceable rights issue last year and S$13 million from bank loans.

GP Sentosa was set up on Aug 10 to help GMG explore and seek out investment opportunities in Thailand. GMG listed GP Sentosa as a TBH shareholder but did not disclose its stake.

TBH, incorporated in 1954, produces and trades in technically specified rubber (TSR). It owns five rubber processing factories that produce about 200,000 tonnes of TSR a year.

But the 2008 global meltdown took a heavy toll on TBH's working capital, as the company had to service bank loans.

'TBH has operated by committing to long-term contracts with its customers and receiving advances from them to pay for raw material purchases,' said GMG, adding that the contracts became unprofitable after the financial crisis of 2008 broke.

In explaining the rationaled for the takeover, GMG said that the deal was a good way to get into Thailand, the 'largest and key producing country for natural rubber'.

'TBH is a leading brand in the natural rubber market due to its establishment, market credibility, reputation and quality products. Therefore, the acquisition will provide a brand name advantage to the company and the to-be-created merged goup.'

GMG added that by pooling strengths, sharing technology and skills, and cross-selling capabilities and facilities, the merged entity will be a 'strong and leading player in the global rubber industry'.

GMG also noted that the takeover would enable TBH to realise its true potential.

'Over the past three financial years, TBH's production and operation levels were far below its achievable capacities. This was mainly due to the insufficient working capital and high financial debts suffered by TBH.'

[Jeff]

I am interested in those deal with raw materials. hope they are winners in long term.
GMG is one of them. the impact of ivory Coast issue seems not so serious, but the counter's price not getting back to above .30.

Vested.

[Musicwhiz]

Massive rights issue announced - about 3.8 billion shares at 9.1 cents each, a huge discount to last done price, just to raise $349 million.

(See attached)

What's the purpose of this exercise? 80% for M&A, and 20% for "general working capital".

Looking at recent results, Balance Sheet is in a net cash position, and there was FCF for 9M ended Sep 30, 2011.

So what's the rationale for this massive rights issue? Any comments?

(Not Vested)

[yeokiwi]

The Company intends to utilise the Net Proceeds for the following purposes:
(a) approximately 80% of the Net Proceeds for capital expenditure and strategic investments; and
(b) approximately 20% of the Net Proceeds for working capital.
Pending the deployment of the Net Proceeds, the Net Proceeds may be deposited with banks and/or financial institutions or used for investment in short-term money markets or debt instruments or used for other purposes on a short-term basis as the Directors may deem appropriate in the interests of the Company.
The Company will make periodic announcements on the utilisation of the proceeds from the Rights Issue, as the funds from the Rights Issue are materially disbursed, and provide a status report on the use of the proceeds from the Rights Issue in the Company's annual report.

It depends on whether you are comfortable with the above statement.haha..
Anyway, it is known that China companies are interested in investing in Africa and GMG seems to be a good proxy to do the job. Sinochem will be pumping the main bulk of cash into GMG and the $$$ will be in Singapore until it is used. Easier for auditors to check haha...(no need to deal with Xiamen banks...)

[Nick]

I guess a big M&A in the pipeline. They just did some major acquisition recently so I guess more in the pipeline.

[sgxstockpicker]

i think. I think the possibly the rain and African turmoil has affected its ops. will have to wait for its latest results before dissecting anything. quite disappointing to see a second rights issue in as many years.

[VestedInterest]

Lots of recent corporate devp for this one. Price depressed in this kind of market but more so because of recent capital raising exercise which has made it cheap and very near its NTA. Think Sinochem has big plans for this company. China needs rubber for its industries. I think measures to stimulate the economy are underway. Caveat emptor.

[freedom]

for me, GMG is just a tool for Sinochem to secure more rubber supply in the politically unstable Africa. If rubber is over-supply and price drops, GMG suffers great , but minimum impact on Sinochem as Sinochem is much larger than GMG. But if rubber is short of supply, Sinochem can secure supply from GMG. For Sinochem, there is a lot to win, little to lose; but for the rest, there is more to lose, not much to win.

[freedom]

did I see it wrong?

today GMG bought back 13.2 million share from open market @0.113. I thought they just sold more than 3 billion of their share @0.091.

what a ridiculous way of managing money.

[Musicwhiz]

did I see it wrong?

today GMG bought back 13.2 million share from open market @0.113. I thought they just sold more than 3 billion of their share @0.091.

what a ridiculous way of managing money.

A classic case of selling cheap, and buying expensively?