The correct question to ask is not why didn't go for a right issue instead.
A rights issue is generally not a desirable option for the management either because the chairman himself owns about 30% of the shares.
If they do a rights issue to raise over 100 million, it would mean he would personally need to come up with over 30 million for the rights issue. And it is because of this fact that one shouldn't seek assurance from the mere fact that they didn't opt for a rights issue.
In fact in Eratat's case if they do a rights issue to raise 100 million, some might even consider it a good thing if the chairman is willing to commit over 30 million of his own money to the company. So far the chairman has not been a net buyer of the company at all. His in-laws owned about 50% of the company before IPO but in 2009 Lin Jiancheng only purchased 29% stake from them, with the rest sold in the open market, meaning Lin and his family have been net sellers of the company's shares since IPO.
Despite the extremely low valuations, no share buyback has ever been done, and the directors are not purchasing any shares. Why? So in fact a rights issue may be a good thing, because it would mean Lin is willing to put in 30 million plus of his own money into the company.
The correct question to ask is why did they did not or were not able to obtain a bank loan instead? There are tons of small cap Chinese companies out there, some even listed in Singapore, which have been able to obtain bank loans, albeit not as low as interest rates in Singapore banks, but certainly not as high as 32%
The real question is why Eratat did not/could not obtain a bank loan instead? Speculating here is quite pointless and my suggestion to all Eratat shareholders is go to ask Eratat's Investor Relations these questions, because they are extremely important and pertinent ones, instead of trying to rationalize on their behalf, when you yourselves are not sure.
if eratat issues rights or placement at this price now, i will be one of the first to oppose it.
first, supply of shares increase, be it rights or placement. I have never liked dilution of shares from rights or placement.
Secondy, the present price (under 20 cents) is too cheap to talk about issuing of new shares, be it from rights or placement.
Lin jiancheng putting money for rights issue VS pledging his own shares for the bond - any difference? it is still an act of commitment by the company to ensure a successful expansion.
will a bank loan be able to offer a better interest rate from bond? maybe yes, maybe no or maybe around the same.
But with bond issue, it can be tied together with warrants n attract new bond investors n perhaps convert them to shareholders someday when the warrants is exercised. With bond issue, it also calls for stricter corporate governance and greater transparency. The warrant serves to act as a protection for the loan or to raise cash in the future. U can't do all these if it is just a bank loan.
The right question is why a non-convertible bond + warrant and not a convertible bond instead? convertible bond has lesser interest rates and u can choose an exercise price. And, why the loan is two years n not longer?
skeptic, no rights or placement. i will object it. Bond issue is the best choice for Eratat.
Skeptic wrote: Hi Peak,
The correct question to ask is not why didn't go for a right issue instead.
A rights issue is generally not a desirable option for the management either because the chairman himself owns about 30% of the shares.
If they do a rights issue to raise over 100 million, it would mean he would personally need to come up with over 30 million for the rights issue. And it is because of this fact that one shouldn't seek assurance from the mere fact that they didn't opt for a rights issue.
In fact in Eratat's case if they do a rights issue to raise 100 million, some might even consider it a good thing if the chairman is willing to commit over 30 million of his own money to the company. So far the chairman has not been a net buyer of the company at all. His in-laws owned about 50% of the company before IPO but in 2009 Lin Jiancheng only purchased 29% stake from them, with the rest sold in the open market, meaning Lin and his family have been net sellers of the company's shares since IPO.
Despite the extremely low valuations, no share buyback has ever been done, and the directors are not purchasing any shares. Why? So in fact a rights issue may be a good thing, because it would mean Lin is willing to put in 30 million plus of his own money into the company.
The correct question to ask is why did they did not or were not able to obtain a bank loan instead? There are tons of small cap Chinese companies out there, some even listed in Singapore, which have been able to obtain bank loans, albeit not as low as interest rates in Singapore banks, but certainly not as high as 32%
The real question is why Eratat did not/could not obtain a bank loan instead? Speculating here is quite pointless and my suggestion to all Eratat shareholders is go to ask Eratat's Investor Relations these questions, because they are extremely important and pertinent ones, instead of trying to rationalize on their behalf, when you yourselves are not sure.
Funny how you mind rights issue, but don't mind them paying 32% interest or giving about 67 million away. The 67 million is also shareholders money you know, just like the shares that would be diluted in a rights issue.
I'm not advocating rights issue for Eratat, really it's between the devil and the deep blue sea. All I'm saying is that if management goes for rights issue and Lin Jiancheng subscribes to the rights by pumping in 30 million of his own cash, that would on the contrary be assurance to shareholders of his belief in the company business. This doesn't mean I think it would be the right move for them from a corporate perspective. Whether or not you agree with the share dilution is a separate issue altogether. This is a HYPOTHESIS, not a SUGGESTION.
The fact that Lin Jiancheng is pledging his shares mean nothing if the shares are worth nothing, which is the fear of people who question why they resort to such desperate means to raise cash when they supposedly already have so much. Therefore pledging shares is not an assurance. Buying shares would be an assurance. Share buybacks would be a form of assurance. Willingness to committing 30 million of his own money to subscribe to shares through a rights issue (not that I recommend this) would definitely be a form of assurance.
Again, I reiterate: Speculating here is quite pointless and my suggestion to all Eratat shareholders is go to ask Eratat's Investor Relations these questions, because they are extremely important and pertinent ones, instead of trying to rationalize on their behalf, and trying to justify paying a 32% interest rate on their behalf, when you yourselves are not sure why. Go find out from them and share here.
I also believe in skeptic view.
If this company is really so good, it is stupid to use company money to sharebuyback benefiting strangers as well, instead the chairmain should be using his own money to buy share for himself!
In some s-chip, they offer to buyback 100% share, taking company private!
