Jardine C&C completes rights issue

Successful completion of deal by Singapore-listed company may herald a more active M&A strategy as it diversifies away from auto business.
Long history oiling the wheels of Asian commerce
Long history oiling the wheels of Asian commerce

Jardine Cycle & Carriage, the Singapore-listed automotive subsidiary of Hong Kong conglomerate Jardine Matheson Group, has successfully completed a S$1 billion ($749 million) 1-for-9 rights issue.

The group received applications for 48.5 million shares, representing an oversubscription rate of 22.7% relative to the 39.5 million new shares issued, according to the company’s exchange filings.

Jardine Strategic, which owns a 74.34% stake in the group, subscribed to its entitlement in full.

Existing shareholders who subscribed to the rights at S$26 per share will now be hoping the share price continues to bounce back given it closed Tuesday at S$31.09, below the theoretical ex-rights price of S$35.05.

When the deal was first announced on June 18, pricing was fixed at a 27.9% discount to the spot close of S$31.09 and at a 25.8% discount to the theoretical ex-rights price. However, at that point the stock was still in the throes of a downward slide from a year-to-date high of S$42.085 in mid April.

After falling to a low of S$29.88 on July 7, it has since started to show signs of recovery and closed up 1.92% on Tuesday. The rights will become tradable on Friday.

De-gearing ahead of more M&A

Proceeds from the rights issue are being used to pay off loans that funded the acquisition of a 24.9% stake in Bangkok-listed Siam City Cement Public earlier this spring.

This $615 million transaction marked Jardine C&C’s first foray into the cement industry and was completed at Bt358 per share. This represented a 2% discount to the closing price on March 27 and a valuation equating to 10.1 times EV/Ebitda and 14.7 times earnings according to analysts.

Since then the share price hit a high of Bt400 in late May, but has subsequently dropped back to Bt369 at Tuesday’s close.

The deal makes Jardine C&C the second largest shareholder in Siam City Cement behind Thailand’s Sunrise Equity on 34.81%.

Jardine C&C spokesperson Ho Yeng Tat told FinanceAsia the investment gives the company exposure to the Thai economy and an established sector. He added that while the new business is not directly related to its core automobile dealing business it will diversify the company’s business portfolio in South East Asia.

Indeed analysts believe that Jardine C&C may be about to embark on a new M&A cycle after using the rights issue to de-leverage its balance sheet, with net gearing dropping from 0.8 to 0.5 times.

DBS analyst Paul Yong recently commented that the deal may “portend a more aggressive M&A strategy for Jardine C&C ahead (Pan United anyone?), in part to diversity its earnings away from dependence on Astra, which is currently facing a challenging domestic environment.”

Jardine C&C derives the majority of its revenue from 50.1%-owned Jakarta-listed Astra International, which dominates Indonesian automobile manufacturing and sales. In 2014, 91.3% of Jardine C&C’s revenues came from the Indonesian unit.

However, Astra International has suffered from the weak Indonesian Rupiah, which has resulted in higher prices for imported raw materials, leading to a surge in production costs. Meanwhile, Indonesia’s slowing economic growth has dampened demand for durable consumer goods, directly hitting the local automobile market.

Analysts at Indonesia’s Indo Premier Securities argue that there are no signs of recovery for auto business in Indonesia.

Astra International shares have retreated 20% from their April peak to close at Rp6,825 on Tuesday.

Apart from Astra, Jardine C&C operates auto dealer subsidiaries in Singapore, Malaysia and Indonesia, as well as auto manufacturing and assembly units in Vietnam and Myanmar. Siam City Cement is the company’s first venture into Thailand.

Jardine C&C’s Ho told FinanceAsia the company is committed to continue growing its presence in Thailand and around the region.

CLSA, HSBC and Morgan Stanley were joint underwriters of the rights issue.

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