China New Town Development: The route to survival

1 parcel sold in May’09, looking to launch up to 3 more in 2H09. CNTD’s land sales division, its core business segment, with only 1 listing since the start of the year, has seen sales slowly coming through. This sale of a 250mou (c168k sqm) land parcel at Lodian New Town was successfully auctioned off to CNTD’s parent company at S$3,635psm, priced at 20% lower than the previous auctioned price. Looking ahead, the group is preparing to list up to 3 more plots of land, with sizes ranging from 90-400 mou at Lodian and Shenyang projects.

Proposed early retirement of senior notes. With hefty interest obligations on its senior yield notes and scheduled loan repayment (est. RMB 175m) continuing to burden CNTD financial flexibility, CNTD has proposed to buy back a significant portion of its senior notes through an issuance of shares and new equity. This hybrid scheme is expected to cost CNTD RMB 304m in cash coupled with new equity issue of c180m shares. This will be funded internally and a loan from the executive chairman, Mr. Shi Jian, who has opted to receive in lieu of repayment through new shares in CNTD, which could mean a further 1,104m shares or 40% of share base.

Maintain HOLD, TP S$0.10, 30% discount to RNAV of S$0.14. While the new repayment scheme could be seen as a positive step in relieving the group of its burdensome interest obligations, the potential dilution from new share issuance (estimated at 40% of revised share base) could cap re-rating opportunities.

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