Sound Global

[Nick]

SOUND GLOBAL TO UNDERTAKE BUILD, OPERATE AND TRANSFER PROJECT IN YANG COUNTY, SHAANXI PROVINCE, PRC

http://info.sgx.com/webcoranncatth.nsf/V...800322CD4/$file/Ann_BOT_Yangxian_SGX.pdf?openelement

Sound Global has been investing heavily in BOT plant projects over the past 2 years. Most of it isn't operational yet. At the moment, the bulk of its revenue is derived from its EPC water plant projects. It is also under-taking an EPC project in the Middle East.

(Not Vested)

[CityFarmer]

This stock fall into my radar when i research into Waste Water Treatment Biz.

After several years of working on BOT projects, the revenue and net profit start improving. But the huge working capital required to operate the BOT projects seem daunting.

Any view from others?

[CityFarmer]

To get myself familiar with the service concession biz's accounting method, i had spend half a day with a CPA. Now i understand accountancy is never easier than engineering It required different skill of conceptualization.

It is always fun to learn and be empowered with knowledge. I am more knowledgeable and powerful than myself yesterday

(vested)

[CityFarmer]

SoundGlobal is proposing to raise $ via international offering of senior notes

http://info.sgx.com/webcorannc.nsf/Annou...endocument

The reasons quoted to raise the $ are
- to invest in prospective BOT projects
- to refinance the 2010 Convertible Bonds
- to fund working capital and other general and corporate purposes

The size and yield is not disclose.

The Company issued RMB885 million, 6% convertible loan notes on September 15, 2010

Base on last Q1 report's balance sheet
- Cash and equivalent : 2058 RMB Mils
- Debt (current + non-current) = 859 RMB Mils
- Convertible Loan notes = 810 RMB Mils

The position is net cash

Will the company able to re-finance the 6% convertible loan note to lower yield notes with the abundant of cash around?

(vested)

[CityFarmer]

SoundGlobal announce issue of US$150,000,000 11.875% senior notes due 2017

http://info.sgx.com/webcorannc.nsf/Annou...endocument

Reasons for the Notes Issue

The estimated net proceeds of the Notes, after deduction of the estimated expenses, will be
approximately US$146.4 million, which the Company intends to use to invest in prospective BOT
projects, refinance the 2010 Convertible Bonds and repay the term loan facility with Wing Lung
Bank Limited and for working capital and other general and corporate purposes. The Company
may adjust the expected use of proceeds in response to changing market conditions.

Is it rational move by management? US150 Mils is almost the same as the CB amount. Redeem a CB of 6% with 11.875% Senior Notes? Even strip out the equity part of the CB, the Senior Notes still too expensive to me. Did i miss out anything?

(vested)

[l0nEr]

Is it rational move by management? US150 Mils is almost the same as the CB amount. Redeem a CB of 6% with 11.875% Senior Notes? Even strip out the equity part of the CB, the Senior Notes still too expensive to me. Did i miss out anything?

Think this is close to the rate at which similar-rated Chinese industrials (e.g. Lonking, China Oriental) are paying for offshore bonds now.
Question is why they refused to get onshore debt (at cheaper rate) or secured bank debt.
If I'm not wrong the convertibles is USD-settled.

(not vested)

[CityFarmer]

Is it rational move by management? US150 Mils is almost the same as the CB amount. Redeem a CB of 6% with 11.875% Senior Notes? Even strip out the equity part of the CB, the Senior Notes still too expensive to me. Did i miss out anything?

Think this is close to the rate at which similar-rated Chinese industrials (e.g. Lonking, China Oriental) are paying for offshore bonds now.
Question is why they refused to get onshore debt (at cheaper rate) or secured bank debt.
If I'm not wrong the convertibles is USD-settled.

(not vested)

Yes, the existing CB is US$-settled.

SoundGlobal should not structure its debt to all bank debt, although it might carried lower effective interest rate. Bank debt is the worst debt compare with other debt e.g. bond, notes etc.

SoundGlobal already had approx RMB 430 Mils bank debt (base on FY2011 AR), both secured and unsecured with effective interest rate of 4.8%-8.2%.

I am not so sure 11.875% Senior Notes is the way to go yet. I may need more time to do all the maths.

[l0nEr]

hmm but i thought they have rather low secured debt, vs total debt and total assets? and they do have the ability to borrow onshore at a much lower rate. In any case, the new bonds are currently trading slightly below par now (i.e. the yields have gone higher than 11.875%).

Paiseh, could you also explain why you think that bank debt is the worst debt compared to other forms of debt? Not very familar with the differences.

Thanks!

[CityFarmer]

hmm but i thought they have rather low secured debt, vs total debt and total assets? and they do have the ability to borrow onshore at a much lower rate. In any case, the new bonds are currently trading slightly below par now (i.e. the yields have gone higher than 11.875%).

Paiseh, could you also explain why you think that bank debt is the worst debt compared to other forms of debt? Not very familar with the differences.

Thanks!

Debt can be structured as bank debt and funded debt. Bank debt is the worse debt because it it is due on demand. It is the most risky debt. Funded debt e.g. bond and notes are never be called, as long as interest continue be paid. It is due on maturity.

SoundGlobal debt is structured as
- bank debt (secured and un-secured) of RMB 432 Mils
- CB of RMB 818 Mils
- secured borrowing from IFC of RMB 420 Mils (offshore)

Total debt RMB 1670 Mils vs cash reserve of RMB 2074 Mils, net cash position.

Approx 50% in bank debt (onshore and offshore), while funded debt is another 50%. This is the debt structure the management feel comfortable with.

[CityFarmer]

SoundGlobal issued the Senior Note today, and expected to be listed in HK Exchange on 13 Aug 2012

http://info.sgx.com/webcorannc.nsf/Annou...endocument