The price of the share placement represents a 1.2% discount to the previous day’s close and the bonds were issued at par and carry a zero coupon - essentially making it an interest-free loan. The bond’s repayment can be made in the form of shares to be issued to Temasek by Natsteel at an equivalent price of $4.78 and the bond can be converted at any time between now and 2005. Natsteel has referred to this arrangement as a “mandatory deferred equity offering,” as opposed to a convertible bond.
With this money, Natsteel reduces its gearing to 90%, down from the 120% level it was running previously. The proceeds will help pay for a factory in Chicago, which it has recently bought from 3Com, as well as reduce interest expenses by S$15.5 million a year, according to analysts. By reducing the interest income by such an amount, the placement will probably actually enhance Natsteel’s earnings per share, even though the placement will have a dilutive effect.
The company has also announced that it intends to seek a secondary US listing later this year, as most of its business customers are located there. Natsteel primarily makes computer components for other companies and earlier this week announced that its first half profits were 47% lower than last year.
These results were the result of purchases of new factories in the US, as well as a more general re-direction of the business away from pure contract manufacturing to more value added services such as supply chain management. No firm details of the listing have been announced, although the company’s CFO, Chay Yee Meng did confirm that Natsteel was looking into the plan.
Natsteel’s shares finished up in Wednesday’s trading at S$4.98 a share. However, some analysts remain cautious towards the deal.
“The unabashed intervention of the Singapore government may be taken negatively by international investors who would prefer to own shares of companies that can succeed by themselves in international capital markets without needing a leg-up from a big brother,” says a leading analyst at a top research house in Singapore. “Certainly, the connection has not done other big Singapore companies such as SingTel any good in the past.”
