Kim Eng on 16 Mar 2012
Background: Pacific Andes Resources Development Ltd (PARD) sources, transports and supplies frozen seafood products to the international markets, focusing on the frozen fish supply chain management business. It is also the controlling shareholder (58%) of China Fishery Group Limited (CFG SP).
Recent development: PARD announced last week that it will undertake a 1-for-2 rights issue at S$0.14 per share to raise about S$220m. The rights pricing is a 39% discount to its closing share price then of S$0.23. The share price has since declined by 13% and the stock goes ex-rights today.
Palpable frustration. The level of frustration among investors over the dilution from PARD’s rights issue was palpable at a recent company briefing. It was its third rights issue after two 1-for-1 issues in 2007 and 2009 at S$0.52 and S$0.15, respectively.
Up against a stone wall. Management was vague and non-committal on the purpose of the fund-raising, except to say that it was for potential acquisitions and working capital. It reiterated that the funds were not meant to cover debt repayments and that the company is comfortable with its net gearing level of approximately 80%.
Test of investor confidence. PARD’s profitability and macro fundamentals are still positive, as highlighted in our report in February, 2012 Small Caps: Not stopping the love. While we concede that its business is built on scale which requires large amounts of working capital, this round of rights issue out of left field will severely test investor confidence.
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