CAPITALAND’S share price closed 4.3 per cent lower yesterday after the property group announced its $1.1 billion seven-year convertible bond (CB) issue due in 2016.
Some near-term share price weakness is expected due to the dilutive impact of the CB issue’s potential new shares, similar to the group’s four previous CB issues, notes DMG & Partners analyst Brandon Lee, who is maintaining his ‘buy’ recommendation on the counter. He also raised the revalued net asset value-backed target price to $4.43, from $4.37 previously, to ‘reflect the slight accretion on the assumption of full CB conversion’, he said in a research note.
CapitaLand lost no time in announcing the use of the proceeds from its latest CB issue to repay part of its existing indebtedness. It will repurchase $250 million aggregate principal amount of an earlier issue of outstanding CBs due 2018 for $238.9 million. The earlier CBs carry a 3.125 per cent per annum coupon rate – higher than the 2.875 per cent for the latest CBs due 2016.
Upon completing the repurchase of the earlier CBs, CapitaLand is expected to book a gain of about $9.6 million for the current financial year.
As for its latest $1.1 billion CBs due 2016, CapitaLand will raise net proceeds of about $1.08 billion. That’s assuming a $100 million overallotment option is not exercised. The group said it intends to allocate about 70-80 per cent of the net proceeds to refinance its existing indebtedness, and about 20 to 30 per cent to finance new investments and/or for working capital purposes.
Assuming the overallotment option is exercised, a full conversion of the CBs will create about 229.65 million new CapitaLand shares, or about 5.41 per cent of its existing issued shares.
CapitaLand illustrated the financial effects of the CBs (excluding the overallotment option). Assuming full conversion of the CBs, net tangible asset per share as at June 30, 2009, would rise from the reported figure of $2.73 to $2.88. Net gearing at June 30, 2009, would be 0.32, lower than the reported figure of 0.43.
CapitaLand said, however, that it could not quantify the effects of the CB issue on the group’s earnings until the proceeds have been deployed.
The CBs have a conversion price of $4.79, reflecting a 20 per cent premium from Thursday’s closing price of $3.99. Yesterday, the counter ended at $3.82, after plumbing an intra-day low of $3.77.
On Thursday, CapitaLand posted a second-quarter net loss of $156.9 million, compared with a $515.2 million net profit in Q2 last year, after taking into account aggregate losses on revaluations and impairment provisions totalling $280.9 million.
‘We believe subsequent quarters may improve as we go into the year given the improvement in sentiment in our core markets,’ CapitaLand Group president and chief executive Liew Mun Leong said on Thursday. He later indicated in an interview with CNBC that ‘there’s a good chance for us to go back to profitability’ by the end of the year ‘if the economic situation does not deteriorate further, i.e., we do not have deepening revaluation loss’.
Source : Business Times – 1 Aug 2009
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