Markets and Investing
MARKETS & INVESTING | Staff Reporter, Singapore
view(s)

OSIM to issue $120m worth of unsecured convertible bonds

The CBs will mature in July 2016 and can be convertible into new ordinary shares at an initial conversion price of S$2.025 per share, reports OCBC.

The net proceeds of $118.3m would be for OSIM's general corporate and working capital resources, provide funds for potential valueadded acquisitions and/or to reduce existing debt.

Here's more from OCBC:

Issuance of convertible bonds. OSIM International Ltd (OSIM) announced its proposal to issue S$120m worth of unsecured convertible bonds (CBs) maturing in Jul 2016, with the principal terms of the bonds issue being finalised yesterday. The CBs were five times oversubscribed, and have been fully placed to institutional and accredited investors. We also understand that this is the first non-REIT convertible bond issued by a SGX-listed company this year.

The CBs, which have a term of five years, can be convertible into new ordinary shares at an initial conversion price of S$2.025 per share. This represents a 25.0% premium over the closing price of S$1.62 prior to the announcement. The bonds will bear interest at the rate of 2.75% p.a., payable semi-annually. Assuming full conversion of the CBs, approximately 59.3m new ordinary shares would be issued, representing 7.82% of OSIM's existing issued and paid-up capital as at 7 Jun 2011.

Use of proceeds. The net proceeds of approximately S$118.3m would be used to enhance OSIM's general corporate and working capital resources, provide funds for potential valueadded acquisitions and/or to reduce existing debt. Management believes that it is a good opportunity for the group to build up its cash position now, given the favourable low interest rate environment.

This fund raising exercise would thus help to position OSIM for its future growth. We opine that inorganic growth is likely to form an integral part of OSIM's strategy moving forward, given that it is also currently in the process to list TDRs (book-building process underay), which are estimated to raise a further S$76m.

This is likely to encompass the acquisition of strong brands to expand OSIM's product portfolio, with the focus likely to be in Asia. Meanwhile, OSIM is also continuing with its organic growth via the opening of new OSIM and RichLife store outlets to capture rising consumerism, particularly in China.

Maintain BUY albeit higher net interest costs. We have tweaked our estimates to account for higher interest expenses, partially offset by higher interest income due to the enlarged cash position. Notwithstanding the higher net interest costs to be incurred and the potential dilution risks it brings to existing shareholders, we remain confident of management's efforts to drive OSIM's mid-to-long term growth trajectory moving forward with its enlarged 'war chest'.

However, as our valuation is based on 22x FY11F EPS, our fair value estimate decreases from S$2.11 to S$2.08. Maintain BUY given the still attractive upside potential of 35.1%. 

Do you know more about this story? Contact us anonymously through this link.

Click here to learn about advertising, content sponsorship, events & rountables, custom media solutions, whitepaper writing, sales leads or eDM opportunities with us.

To get a media kit and information on advertising or sponsoring click here.