July 30, 2021

4 thoughts on “My Portfolio – 2Q14 Post Findings and Views

  1. Hi Rolf

    Wow that is a nice piece of summary you have put there.

    For china merchant Pacific, I think the convertibles are accretive at around 1.14 there which is why I suspect the management is trying to boost its share price higher so that the convertibles can be exercised. At current price I think its still a steal. Im thinking of adding them further this month.

    Btw on a separate note are you accountant or finance related by profession?

  2. Hi B,

    Thanks for the compliment. I am not in account/finance, instead I am engineer trained and work in the oil and gas industry started with engineering/project background then sales/management (last 8 yrs).

    For China Merchant Pacific, once the convertibles are exercised, wouldn't it mean dilutive to unitholders? If you do not mind, can I send you a personal message of some queries on this? How can I contact you or if you can drop me a mail at rolfsuey@gmail.com

    Thanks, Rolf.

    1. Hi Rolf

      Here's how I see these convertible bonds play out.

      Back then in 2012 in their acquisition of Beilun Port Expressway, they chose to issue a convertible bonds (with maturity in Nov 2017 and a put option that the bondholders can exercise requiring the company to redeem the bonds after Nov 2015 to maturity) instead of raising equity. This kills two birds at one stone because not only are their cost of financing low at 1.25% but also offers the bondholder to convert into equity should the company continue to do well. So if the price fails to recover beyond the initial conversion price at $0.84 (now at $0.826) anyway, they would treat this as low cost of financing anyway.

      The new conversion price are being dictated every year by its stock price as well as the difference in dividends paid this year vs last year. So back then in FY2013, the new conversion price are being calculated at $0.84 x ($0.935 – (0.07-0.055))/$0.935 = $0.826. Based on this formula, it is in the company's interest to boost its shares as high as possible as the new conversion price would become higher. One way to do so is by dishing out higher dividends to appeal retail investors to notice the stocks and push its price higher.

      Even though there will be dilution to the existing ordinary shareholders if the convertibles are being converted, it is still in the company's interest to push its shares as high as possible. First, the conversion will allow gearing to go down and second the conversion will increase the percentage of free floating by outside the parent group (who now control almost 82%). Anyway, assuming fully diluted, the FCF they generated will still able to cover for its dividends paid out.

      A few days ago, there are about HKD$8million bonds that were converted so I suspect we could see more of this coming out from now until Nov 2015 when the bondholders are in "power"

      Last but not least, the company is currently trading below its NAV which is at around HKD6.26. Taking exchange rate of 6.23, the NAV would be around $1. As long as the shares are trading below its book value, it is quite unlikely that the parents would exercise their RCPS.

      Hope this helps.

  3. All the contents you mentioned in post is too good and can be very useful. I will keep it in mind, thanks for sharing the information keep updating, looking forward for more posts.Thanks. 192.168.l.254 It’s used to enter in web-interface which also known as admin panel.

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