Clearbridge Health

[cyclone]

Clearbridge makes flat debut at S$0.28, but sees slight gains within hour

LEE MEIXIAN
MON, DEC 18, 2017 - 10:04 AM

CLEARBRIDGE Health began its trading debut on Monday flat against its initial public offering price (IPO) of S$0.28, but had risen by one cent within half an hour.

As at 9.32am, close to six million shares had changed hands, placing it among the most active stocks on the market.

The Asia-focused healthcare precision medicine services provider sold 88 million shares in an all-placement offering for a Catalist listing. The IPO price valued the company at S$134.7 million.

More details in http://www.businesstimes.com.sg/companie...ithin-hour

About Clearbridge Health Limited 
Clearbridge Health Limited is a healthcare company with a focus on the delivery of precision medicine in Asia. Its business comprises laboratory testing services, medical clinics/centres and strategic equity participation in complementary precision medical technology companies. Through the delivery of precision medicine in Asia, it seeks to empower clinicians and healthcare professionals to make more reliable and accurate diagnosis, provide insights to disease management, and tailor personalised prevention and timely treatment programme for patients.

Website :  www.clearbridgehealth.com

[weijian]

I managed to read the offer document from a friend of mine and it was looking to raise 11-20mil. Without Mgt support of 1.5mil, actually only 9.5mil was raised, which is even lower than the minimum amount it wanted to raise (i guess Mr Market has spoken about this).

OTOH, as usual, the terms for this CB for the debt holders are good - 7% per annum with a step up after 1.5years which brings the effective interest to between 12-14% per annum. Sometimes such step-up features are marketed as an incentive for the company to return the money asap. IMHO, i think these features are more of a feature to attract people to take up the offer, than incentivise the offerer to pay back the money. 70% of the money will be used to spend on new businesses and these businesses will need a quick gestation period and start giving ~20% IRR to allow the company to return the money. As VBs already know - it is always about return of money, then return on money.

PROPOSED ISSUE OF CONVERTIBLE BONDS

The board of directors of Clearbridge Health Limited (the “Company”), wishes to announce that the subscribers named in paragraph 5 of this announcement (the "Subscribers") have agreed to subscribe for convertible bonds due 2022 (the "Convertible Bonds"), which are convertible into
new ordinary shares in the capital of the Company and have entered into a subscription agreement with the Company on 31 January 2019 (the "Subscription Agreement").

1. Principal Terms of the Convertible Bonds
The principal terms and conditions of the Convertible Bonds are summarized as follows: Issue Size : The Convertible Bonds will be issued in two separate series, S$9.5 million to the Subscribers (except Yee Pinh Jeremy and Chen Johnson) (the "Series 1 Subscribers"), S$1.0 million and S$0.5 million to Yee Pinh Jeremy and Chen Johnson (the "Series 2 Subscribers") respectively.

http://infopub.sgx.com/FileOpen/Clearbri...eID=542391

[Shiyi]

This is not perpetual bond and should not come with step-up interests.

[weijian]

hi shiyi,
to clarify, there is no change in the "rate" of interest, but the principle will be redeemed at a premium after 18months, making the "effective" interest rate to be higher.

i used the word "step up" freely and that probably confused. My apologies.

[Debronic]

I managed to read the offer document from a friend of mine and it was looking to raise 11-20mil. Without Mgt support of 1.5mil, actually only 9.5mil was raised, which is even lower than the minimum amount it wanted to raise (i guess Mr Market has spoken about this).

OTOH, as usual, the terms for this CB for the debt holders are good - 7% per annum with a step up after 1.5years which brings the effective interest to between 12-14% per annum. Sometimes such step-up features are marketed as an incentive for the company to return the money asap. IMHO, i think these features are more of a feature to attract people to take up the offer, than incentivise the offerer to pay back the money. 70% of the money will be used to spend on new businesses and these businesses will need a quick gestation period and start giving ~20% IRR to allow the company to return the money. As VBs already know - it is always about return of money, then return on money.

PROPOSED ISSUE OF CONVERTIBLE BONDS

The board of directors of Clearbridge Health Limited (the “Company”), wishes to announce that the subscribers named in paragraph 5 of this announcement (the "Subscribers") have agreed to subscribe for convertible bonds due 2022 (the "Convertible Bonds"), which are convertible into
new ordinary shares in the capital of the Company and have entered into a subscription agreement with the Company on 31 January 2019 (the "Subscription Agreement").

1. Principal Terms of the Convertible Bonds
The principal terms and conditions of the Convertible Bonds are summarized as follows: Issue Size : The Convertible Bonds will be issued in two separate series, S$9.5 million to the Subscribers (except Yee Pinh Jeremy and Chen Johnson) (the "Series 1 Subscribers"), S$1.0 million and S$0.5 million to Yee Pinh Jeremy and Chen Johnson (the "Series 2 Subscribers") respectively.

http://infopub.sgx.com/FileOpen/Clearbri...eID=542391

I would like to offer a slightly different perspective here.

You are right in the later post there is no step up mechanism since "step-up" is more commonly used for interest rates. From the terms, it appears that that the CBs are only redeemable from 18 mths after issue with the redemption price used to determine the effective interest rates according to when the CBs are redeemed. Just from running some simple numbers, the effective interest rate generally gets progressively more expensive with each passing period eg. moving from 18-24 to 24-30 to >30 even though there may be some fluctuations with each period itself. This is not uncommon for CBs and aligned with most fixed income issuances where a higher rate is used to compensate for longer maturities. 

On the demand, I would argue that the company already did very well to get 9.5m from external investors, considering the challenging capital markets condition. Looking at the top few investors, you have 3m from Bonvest and 1.5m from Sim Lian's Kuik siblings. These are decent names to have on board. The effective interest rates of around 11.5% to 14.3% is not too bad for a company still running on losses with negative operating cashflow. It is also quite common for investors to want to see principals with skin in the game so I would not assume that the Jeremy Yee and Johnson Chen's participation as being there just to meet the minimum amount raised. Afterall, 1.5m is quite a sizeable commitment.

[Shiyi]

Thank you Weijian.
I take a second look of the announcement. It's as good as step-up interest.
Upon maturity of the bond, the company has to pay an amount equivalent to 120% of the bond plus accrued interest.
What kind of business that can give such a return?

The issuance of this bond should seek approval at EGM.

[weijian]

@Debronic,
Thanks for your alternate views. As illuminating as ever. While i don't have a feel of "the market sentiment", but i guess recent local headline turners like Hyflux and SinoGrandness definitely don't do them a favor. That said, if they have to raise this money now, probably it isn't done from a position of strength (in other words, they are desperate OR they really see a compelling investment thesis in their expansion candidates)...Actually they remind me a little of Maoyan that listed this Monday on CNY eve (feels kinda desperate to me). As for the few "decent names", they probably got more insights than us, but I think i will never know their asset allocation strategy though.

https://www.reuters.com/article/us-maoya...SKCN1PM0NL

@Shiyi,
the issue of these CBs are within the limit of their share issue mandate obtained at the last AGM. This info was provided in the link i provided.

[Shiyi]

@Debronic,
Thanks for your alternate views. As illuminating as ever. While i don't have a feel of "the market sentiment", but i guess recent local headline turners like Hyflux and SinoGrandness definitely don't do them a favor. That said, if they have to raise this money now, probably it isn't done from a position of strength (in other words, they are desperate OR they really see a compelling investment thesis in their expansion candidates)...Actually they remind me a little of Maoyan that listed this Monday on CNY eve (feels kinda desperate to me). As for the few "decent names", they probably got more insights than us, but I think i will never know their asset allocation strategy though.

https://www.reuters.com/article/us-maoya...SKCN1PM0NL

@Shiyi,
the issue of these CBs are within the limit of their share issue mandate obtained at the last AGM. This info was provided in the link i provided.

The SGX has queried the company about the "redemption premium". According to the company, the effective interest rate is 12.5% for redemption between 18 months and 24 months, 12.3% between 24 months and 30 months , 12.1% between 30 months and 36 months.

Though the company said that the rate is in line with the market, it is still pretty high. And it should seek approval at EGM despite the mandate.

[Shiyi]

@Debronic,
I'm not good at maths. You mentioned that the bond comes with step-up interest. But the effective interest rate shown by the company seems to be "step-down" rate. From 12.5% drops to 12.1%.

Perhaps you can help explain. Thanks.

[Debronic]

@Debronic,
I'm not good at maths. You mentioned that the bond comes with step-up interest. But the effective interest rate shown by the company seems to be "step-down" rate. From 12.5% drops to 12.1%.

Perhaps you can help explain. Thanks.

I do not know how the company derived its numbers. You probably have to write in to them to ask. But intuitively, having one redemption price for each 6-month block will result in a range of interest rates within each period so it is not possible to have just one for each as the company indicated. Maybe it was using average? 

Anyway, just to give one illustration:

Based on the terms, if you redeem the shares exactly 24 months after issue:
Coupon (PMT) =7, Issue price (-PV) = 100, Redemption price (FV) = 114.4, Period (N) = 2 years
Key these into a financial calculator and you should get 13.7% effective interest rate. Using excel, which I did, should give you roughly the same answer. 

This is already different from what the company disclosed (12.3%). To be sure, I am just using very simple tools to do the computation as if the issue was a straight bond. Given the big difference between current market price and conversion price (0.17 vs 0.28), I find it prudent to ignore any conversion value. The company may (probably should) have included this in its computation to give a reduced effective interest rate which would explain the difference.