The company is responsible for supply chain management and the provision of logistic and shipping services within the Pacific Andes group, whose main business is the distribution of frozen fish and seafood. The subsidiary China Fishery Group, in which it is increasing its stake, is the fishing division within the group.
The CB, which accounts for just under 20% of the companyÆs issued share capital, was done together with a rights issue to existing shareholders which will raise another $225.6 million that will also go towards the same acquisition. Both deals were arranged by HSBC.
This is the first publicly marketed CB of size in Asia since mid-February when Merrill Lynch did a $175 million deal for Indian drug maker Orchid Chemicals & Pharmaceuticals. Those bonds were sold off in the immediate aftermarket after both equity and bond investors reacted negatively to a hefty increase in the deal size.
OrchidÆs offer came on the tail end of a busy two-week period that saw five other convertibles come to market, including the record-breaking $1 billion offering from Reliance Communications and a $425 million deal from US-listed Suntech Power. Since then, however, the markets have become a lot more volatile which, according to CB bankers, have made it more difficult to pin down the credits. Potential issuers have in many cases also had to cope with sizeable drops in their share prices, which have made them hold off on equity-related fund raising exercises for the time being.
The good demand for the Pacific Andes trade, which sources say was partially due to the recent lack of primary issues, may convince them to revive their CB plans, however.
According to one source, the offer was more than four times covered and attracted some 40 investors even though the order book was open for only two hours. All the usual hedge funds and CB investors were said to have come into the trade, which was open to Asian and European investors as well as offshore US accounts.
The demand was reflected in the pricing which saw both the yield and the conversion premium fixed at the end of the range most favourable to the issuer - the premium at the wide end of the 20% to 25% range and the yield at the tight end of a 6.75% to 7.25% range.
Based on TuesdayÆs closing price of S$0.865, the initial conversion price was set at S$1.0813. However, this will be adjusted down to S$0.8656 to reflect the dilution caused by the one-for-one rights issue which was offered to investors at a 39.9% discount to the latest close.
The five-year bonds have a 4% coupon and were sold at par. There is no put, but the issuer has the ability to call the bonds already after two years if they continue to perform strongly. To ensure the bond investors donÆt get cheated on their share of any such upside, this can only be done if the share price gains exceed the initial conversion price by more than 40%. This hurdle will fall to 30% after three years and 20% after four years.
The offering was priced off a credit spread of 400 basis points where HSBC provided asset swaps for about $20 million of the deal. The stock borrow cost was assumed at 5% since there is no lending available and a dividend protection will kick in if the companyÆs payout ratio goes above 33% of the net consolidated profit, which at current prices is equal to a dividend yield of 3.6%.
This gave a bond floor of 90% and an implied volatility of about 30%, which compares with a quite high historic volatility of about 40%. The volatility is evident by the fact that the stock rallied 27% in the first two months this year to a high of S$0.99, but has since dropped about 13% to TuesdayÆs close of S$0.865. It is up 18% in the past 12 months.
The shares were suspended Wednesday pending further details on the China Fishery acquisition and the funding of it.
According to a source, Pacific Andes will increase its indirect stake in China Fishery by acquiring more shares in Super Investment Ltd, which holds 78% of the unit in question. Pacific Andes already owns (indirectly) 34.9% in Super Investments and it will now buy a further 45%.
Separately û although this deal is also arranged by HSBC û Hong Kong-listed Pacific Andes International, which owns 65% of Singapore-listed Pacific Andes Ltd., will also do a rights issue to raise enough cash to take up its entitlement in the Singapore subsidiaryÆs rights issue.
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