Singamas launches $63 million rights issue

Shares in the container manufacturer plummet on the news despite arrangements whereby the controlling shareholder is underwriting most of the issue.

Singamas Container Holdings, a Hong Kong-listed marine container manufacturer, yesterday launched a HK$492 million ($63 million) rights issue. The company is raising money to repay part of its bank loans, save interest expenses and generally strengthen its financial position.
The company will offer 1.4 billion new shares to existing shareholders at a subscription price of HK$0.35 per share, a 53.9% discount to the last traded price on February 26, prior to a suspension and a discount of 56.8% to the average closing price for the 10 consecutive trading days up to and including February 26.
By the close of trading yesterday, the company's shares were down by 38.16%. Shareholders are entitled to two shares for every share they hold. The rights shares will represent approximately 200% of the company's existing share capital and around two-thirds of its enlarged share capital following the rights issue.
According to listing rules, as the issue will increase the share capital by more than 50%, the deal will be conditional on shareholder approval at an extraordinary general meeting. At the vote, Pacific International Lines, the controlling shareholder who owns 44.7% of Singamas will abstain.
The company's other shareholders with more than a one percent stake, according to Bloomberg, are DNB Nor Asset Management with 7%, Shah Capital Management with 5.4% and UBS with 4.9%.
In December, the company issued a profit warning. It anticipated a "substantial" decline in its 2008 profits. This is partly due to marked-to-market losses from a swap derivative instrument which as of December 31 was around $13 million.
Singamas also anticipates a decline during the first quarter of 2009 in China's export trade which has stunted the demand for dry freight containers. As a result, the company decided to extend the standard closure of its dry freight container production facility to two months over Chinese New Year, instead of the traditional one month. The company did point out that demand for refrigerated containers, tank containers, and other containers remains strong.
There's no denying that things have been tough for China's manufacturers in recent months, but the latest figures suggest there could be some reasons to be hopeful. The purchasing manager index (PMI) was up to 49 in February: the sector is still contracting, since it is lower than 50 points, but a much slower rate than in previous months. It is higher than January's figure of 45.3, and significantly more than the 38.8 bottom that it reached in November.
The improved score, according to data supplied by Morgan Stanley, is the result of rebounds in each of metrics that the overall figure is made up of. One aspect stood out: industrial production reached 51.2, starting to expand after four months of contraction.
The Morgan Stanley note suggests that the upward tick should be "taken with a pinch of salt", saying that it could be the result of a technical rebound and that the figures after Chinese New Year tend to provide one-off high results.
Access Capital is acting as independent financial adviser to the board of Singamas.
DBS Asia Capital is underwriting the rights shares excluding those being issued to Pacific International. Strategic Times, a unit of Singamas's controlling shareholder, Pacific International, will sub-underwrite three quarters of DBS's underwriting.
In the event that the sub-underwriting of Strategic Times is invoked, the shareholding of Pacific International and parties acting in concert will increase to 73% of Singamas. Singamas is requesting shareholders to agree to a "whitewash waiver" under which it will not be required to make a mandatory general offer to remaining retail shareholders. Shareholders approving the whitewash waiver is a condition precedent to the deal proceeding. It would seem that Pacific International is willing to inject capital into its subsidiary to strengthen its capital structure but does not want to shell
out cash to shareholders who may seek an exit.
DBS is earning a commission of 4% for its effort, but only on the shares not being sub-underwritten by Strategic Times. Strategic Times is earning a sub-underwriting commission of HK$4,075,560, translating to around 2%.

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