Yanlord Land - Easy To Accept

One good thing to be said of Yanlord’s capital raising exercise: $228 mln from the placement of 110 mln new shares and up to $375 mln worth of convertible bonds (CB) is that there is nothing “unusual” about it, specifically CBs, which are the “traditional” type, unlike those issued in 2006/07 by the likes of Sino-Environment, KS Energy where bondholders could force redemption if the ordinary share price were to fall significantly below the conversion price (and main cause of all the woes).

In Yanlord’s case, the coupon is 5.85%, which is attractive enough, and conversion price set at $2.6208 per share, or 26% premium to the placement price, and the bonds to run till maturity in 5 years time (July 13 2014), unless the amount outstanding were to drop substantially (to less than 10% of the original amount) as a result of conversion, which can start from Aug 23rd this year (assuming share price continues to run up after a stunning 356% surge).

The total number of shares to be issued on conversion of the CBs is 143 mln shares, representing 7.4% of the post-placement issued capital.

If there is anything negative about the above, it is the sale by founder Zhong Sheng Jian of 10 mln shares also at $2.28 each. He had bought 2.154 mln shares at 90 cents each in Oct ’08 and 3.5 mln shares on 1/4/09 at $1.10 each. (In addition, he bought 16.75 mln 2012 Convertible Notes* on Apr 1 ‘09.) The placement of 10 mln vendor shares will reduce his holding to 1.273 bln shares, still a substantial 65.6% stake, after the placement by the company, but before the conversion of the CBs. (Yanlord’s Top 20 shareholders list is dominated by institutional shareholders such as UOB Asset, Aberdeen, Schroders.)

Being a China property company, the amount to be raised is understandably large (to fund acquisition of new development sites, possible strategic investments, JVs etc), or least the biggest by a non GLC.

Yanlord’s balance sheet at end Mar ’09 shows borrowings of S$1,708 mln (16% short term and 84% long term) vs Shareholders Funds of S$2,004.03 mln. There was cash of S$580 mln. We have not followed Yanlord which listed in 2006. Yesterday’s $2.28 close is almost mid point between the Nov ’08 low of 50 cents, and the Oct ’07 peak of $4.22.

* There is an existing issue of Convertible Notes, S$477.25 mln nominal issued in Feb ’07 with a 4%coupon, and maturing on Feb 6 2012. The conversion price is $2.71 per share. The outstanding amount at end Mar ’09 was $338.3 mln, convertible into 124.83 mln shares.

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