Yangzijiang Shipbuilding (YZJ) has proposed an issue of 330m warrants at a price of RMB0.3072 (S$0.0605) for each warrant. Each warrant carries the right to subscribe for one new ordinary share in YZJ at the price of RMB7.617/share (S$1.50). Though this is a fund raising exercise, the amount that YZJ will receive for now (~$18.15m) is actually relatively insignificant to the amount that may potentially come in later when the warrants are exercised (~$495m). Hence management contends that this move is for YZJ to prepare funds for the future when the shipbuilding industry recovers, which we do not see happening this year or even 1H14. There is no impact on the group’s EPS for now, though there is a potential 8.6% dilutive effect if all warrants are exercised. Maintain HOLD with fair value estimate of S$0.95.
Proposes issue of warrants
Yangzijiang Shipbuilding (YZJ) has proposed an issue of 330m warrants at a price of RMB0.3072 (S$0.0605) for each warrant. Each warrant carries the right to subscribe for one new ordinary share in YZJ at the price of RMB7.617/share (S$1.50). Though the exercise price represents a premium of 47% to yesterday’s closing price of S$1.02, we note that the expiry date is more than three years later at 29 Apr 2016.
S$495m will be raised if warrants are exercised
Though this is a fund raising exercise, the amount that YZJ will receive for now is relatively insignificant to the amount that may potentially come in later when the warrants are exercised; net proceeds of about RMB92.17m (~S$18.15m) will come from the warrant issue, and assuming all warrants are exercised, YZJ will receive additional proceeds of about RMB2,514m (~S$495m), which will be used for general working capital.
No need of cash for now
With a net cash and financial assets position of RMB9.95b, YZJ is in no need of cash for the near term. According to management, this proposed warrant issue is for YZJ to prepare funds for the future when the shipbuilding industry recovers. We do not see a recovery in the Chinese shipbuilding market this year and even in 1H14 – the shipbuilding market normally lags the shipping industry by about a year. Hence management contends that this is long-term planning as the potential funds would provide additional financial flexibility for future market expansion and development opportunities.
Industry outlook remains challenging
There is no impact on the group’s EPS for now, though there is a potential 8.6% dilutive effect if all the warrants are exercised. We still expect 2H13 and 1H14 to be the most difficult periods for the group, based on its order book (US$3.6b as at end Sep 2012) and delivery schedules. Maintain HOLD with fair value estimate of S$0.95.
Yangzijiang Shipbuilding (YZJ) has proposed an issue of 330m warrants at a price of RMB0.3072 (S$0.0605) for each warrant. Each warrant carries the right to subscribe for one new ordinary share in YZJ at the price of RMB7.617/share (S$1.50). Though the exercise price represents a premium of 47% to yesterday’s closing price of S$1.02, we note that the expiry date is more than three years later at 29 Apr 2016.
S$495m will be raised if warrants are exercised
Though this is a fund raising exercise, the amount that YZJ will receive for now is relatively insignificant to the amount that may potentially come in later when the warrants are exercised; net proceeds of about RMB92.17m (~S$18.15m) will come from the warrant issue, and assuming all warrants are exercised, YZJ will receive additional proceeds of about RMB2,514m (~S$495m), which will be used for general working capital.
No need of cash for now
With a net cash and financial assets position of RMB9.95b, YZJ is in no need of cash for the near term. According to management, this proposed warrant issue is for YZJ to prepare funds for the future when the shipbuilding industry recovers. We do not see a recovery in the Chinese shipbuilding market this year and even in 1H14 – the shipbuilding market normally lags the shipping industry by about a year. Hence management contends that this is long-term planning as the potential funds would provide additional financial flexibility for future market expansion and development opportunities.
Industry outlook remains challenging
There is no impact on the group’s EPS for now, though there is a potential 8.6% dilutive effect if all the warrants are exercised. We still expect 2H13 and 1H14 to be the most difficult periods for the group, based on its order book (US$3.6b as at end Sep 2012) and delivery schedules. Maintain HOLD with fair value estimate of S$0.95.
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