Hidili Industry (1393.HK)

Issue of Rmb1.7bn CBs to finance acquisitions

WHAT HAPPENED

Hidili (1393 HK, BUY) would issue Rmb1.7bn of 5-year convertible bonds at around 40% premium to finance its future acquisitions and repay debts.

ANALYSIS

·         Limited impact on P&L. Coupon rate is only 1%-2% per annum, amount to around Rmb34mn finance cost each year, lowering down net profit by around 2% in our estimate, limited negative impact on P&L, in our view. The coupon rate is significantly lower than the borrowing cost of 5.76% on the Rmb1bn 5-year loan from China Construction bank that it secured in October 2009.

·         High premium implying immediate dilution is unlikely. As the conversion price is around 40% higher than the current share price, immediate conversion to shares is unlikely. We think earnings dilutions from CB conversion may only happen after 2010.

·         Potential EPS dilution is only 7%. If all CB were converted at the conversion price of HK$13 (in view of the reported conversion price range of HK$12.58 -13.55), the potential EPS dilution is only 7%, not a significant dilution.

WHAT HAPPENED

Hidili (1393 HK, BUY) would issue Rmb1.7bn of 5-year convertible bonds at around 40% premium to finance its future acquisitions and repay debts.

ANALYSIS

·         Limited impact on P&L. Coupon rate is only 1%-2% per annum, amount to around Rmb34mn finance cost each year, lowering down net profit by around 2% in our estimate, limited negative impact on P&L, in our view. The coupon rate is significantly lower than the borrowing cost of 5.76% on the Rmb1bn 5-year loan from China Construction bank that it secured in October 2009.

·         High premium implying immediate dilution is unlikely. As the conversion price is around 40% higher than the current share price, immediate conversion to shares is unlikely. We think earnings dilutions from CB conversion may only happen after 2010.

·          Potential EPS dilution is only 7%. If all CB were converted at the conversion price of HK$13 (in view of the reported conversion price range of HK$12.58 -13.55), the potential EPS dilution is only 7%, not a significant dilution.