Mandarin Oriental rights issue flops in face of tech craze

Mandarin Oriental''s $150 million rights issue failed to get off, leaving parent company Jardine Matheson with rather more paper than it bargained for.

Singapore-based Jardine Matheson was left to pick up the pieces of associate Mandarin Oriental's latest fund-raising attempt, a $150 million rights issue, as independent investors shunned the latter's old economy paper, preferring to chase the high-tech hopefuls of the internet age.

The fund-raising comprised a one-for-five issue of new shares at S$0.510 that saw 75% take-up and a convertible bond issue - one $5,000 bond for every 48,000 existing shares held - which was 65% subscribed. The shares were underwritten by Mandarin Oriental parent Jardine Strategic, a subsidiary of Jardine Matheson, while the convertible was underwritten by Jardine Fleming, the group's investment banking associate.

Excluding the Jardine Matheson group of companies, just 50% of the remaining shareholders subscribed for their share allocations and 30% for the convertibles.

"People are not really keen on the hotel sector at the moment with everyone after techs," says Eric Wong, analyst at Warburg Dillon Read.

Hotel stocks down

In Hong Kong and Singapore, hotel stocks are typically down 20-30% since the start of the year and Mandarin Oriental has seen a worse-than-average deterioration of around 35% to its current level of S$0.445. Against this, the shares had been trading at S$0.630 when the company's cash call was announced alongside its 1999 results in mid-February.

For 1999, Mandarin Oriental reported a net profit of $17 million on turnover of $342 million, compared with a loss of $4 million on revenues of $338 million in 1998. Analysts say last year's earnings were a touch weaker than they had been looking for, though this should not have alarmed investors. In the main, these commentators are relatively positive on the share price outlook, pointing out that the shares are now trading at a discount of more than 50% to end-2000 book value estimates.

Mandarin Oriental says the proceeds of its rights issue will be used to help finance the acquisition of Monaco-based Rafael Group, which owns and operates hotels in New York, Geneva, Munich, Salzburg, Florida and Bermuda.

The two parties are currently in talks after Rafael selected Mandarin Oriental as its preferred bidder.

Although no clues have yet been given regarding the likely consideration involved in a deal, Wong says Mandarin Oriental should be able to raise up to $400 million more in debt, if necessary.