Following the announcement by Ezra Holdings on 30 May 2015 that it is proposing to raise gross proceeds of about US$300m from a rights issue and convertible bonds issue, the group’s share price has retreated 22% in three trading sessions. The market has already been expecting potential fundraising moves by Ezra, given its upcoming financial obligations, but the amount that is expected to be raised could have surprised the market. We assume that the maximum 2.02b new shares are issued in the rights issue in our ex-rights SOTP valuation, update the market values of the group’s listed entities, such that our fair value estimate (ex-rights) is S$0.25, while the cum-rights value is S$0.32 (takes into account a larger net debt position which would be alleviated by the rights issue). Given that the share price has corrected to S$0.305 vs. our cum-rights fair value of S$0.32, we raise our rating to HOLD.
Price decline following proposed rights and bonds issue
Following the announcement by Ezra Holdings on 30 May 2015 that it is proposing to raise gross proceeds of about US$300m from a rights issue and convertible bonds issue, the group’s share price has retreated from S$0.39 on 29 May to close at S$0.305 yesterday, down 22% in three trading sessions. The market has already been expecting potential fundraising moves by Ezra, given its upcoming financial obligations, but the amount that is expected to be raised could have taken the market by surprise.
Most of the proceeds for repaying debt
About 62% of the gross proceeds will be used to repay S$225m of fixed rate notes due Sep 2015, and 35% to repay S$150m of perpetual securities. In the event Ezra only undertakes the rights issue and not the bonds issue, it will use the net proceeds from the rights issue to partially repay the S$225 million fixed rate notes due Sep 2015. Apart from this, the group will utilise internal cash resources and available credit lines for funding the repayment of the S$225m fixed rate notes.
HOLD with S$0.32 fair value (to drop to S$0.25 post rights)
As at 25 May 2015, Mr. Lee Kian Soo and Mr. Lionel Lee held ~24.7% of the existing share capital of Ezra, and given that both have undertaken to fully subscribe for the rights issue, and the remaining 75.3% will be fully underwritten by Credit Suisse and DBS, it is quite likely that the group would be able to raise the proposed US$150m from the rights issue, should shareholders approve it in an EGM to be convened. We assume that the maximum 2.02b new shares are issued in the rights issue in our ex-rights SOTP valuation, update the market values of the group’s listed entities, such that our fair value estimate (ex-rights) is S$0.25, while the cum-rights value is S$0.32 (takes into account a larger net debt position which would be alleviated by the rights issue). Given that the share price has corrected to S$0.305 vs. our cum-rights fair value of S$0.32, we raise our rating to HOLD.
Following the announcement by Ezra Holdings on 30 May 2015 that it is proposing to raise gross proceeds of about US$300m from a rights issue and convertible bonds issue, the group’s share price has retreated from S$0.39 on 29 May to close at S$0.305 yesterday, down 22% in three trading sessions. The market has already been expecting potential fundraising moves by Ezra, given its upcoming financial obligations, but the amount that is expected to be raised could have taken the market by surprise.
Most of the proceeds for repaying debt
About 62% of the gross proceeds will be used to repay S$225m of fixed rate notes due Sep 2015, and 35% to repay S$150m of perpetual securities. In the event Ezra only undertakes the rights issue and not the bonds issue, it will use the net proceeds from the rights issue to partially repay the S$225 million fixed rate notes due Sep 2015. Apart from this, the group will utilise internal cash resources and available credit lines for funding the repayment of the S$225m fixed rate notes.
HOLD with S$0.32 fair value (to drop to S$0.25 post rights)
As at 25 May 2015, Mr. Lee Kian Soo and Mr. Lionel Lee held ~24.7% of the existing share capital of Ezra, and given that both have undertaken to fully subscribe for the rights issue, and the remaining 75.3% will be fully underwritten by Credit Suisse and DBS, it is quite likely that the group would be able to raise the proposed US$150m from the rights issue, should shareholders approve it in an EGM to be convened. We assume that the maximum 2.02b new shares are issued in the rights issue in our ex-rights SOTP valuation, update the market values of the group’s listed entities, such that our fair value estimate (ex-rights) is S$0.25, while the cum-rights value is S$0.32 (takes into account a larger net debt position which would be alleviated by the rights issue). Given that the share price has corrected to S$0.305 vs. our cum-rights fair value of S$0.32, we raise our rating to HOLD.
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