New Issue Review – Courts Asia Limited

***NEW ISSUE: Courts Asia Limited (“Courts”) 3-yr SGD Sr Unsecured***

Issuer:                 Courts Asia Limited
Status:                 Senior, unsecured
Rating:                Unrated
Issue Size:           TBD
Format/Docs:    Issuer’s S$500M Multicurrency Debt Issuance Programme
Initial Price Guidance: Low 5%, semi-annual, ACT/365 (Fixed)
Tenor:                  3-year
Issue Price:         100%
Denomination:  SGD250K
Governing Law: Singapore Law
Listing:                SGX-ST
Clearing:             CDP
Selling Restrictions:   Sections 274 and/or 275 of the Singapore SFA


– Courts is a leading retailer in Singapore and Malaysia, with a broad  footprint of 73 stores and more than 1.0 million sq. ft. of retail space. Courts generated S$605.3 million of revenue for the nine months ended 31 Dec 2012 and has a healthy balance sheet with strong cash position of S$84.2 million as of 31 Dec 2012.
– Comps:
Aspial 5 2015 103.50, 3.36%
Hong Fok 4.75 2018 102, 4.28%
Biosensor 4.875 2017 104.25, 3.65%

PRIVATE BANK DEMAND WILL BE HUGE ! and clearly a private bank initiative ! The PB rebate is yummy and I bet there will be customers willing to pay a Premium on top of the issue price to secure their share.

It is a household name dear to the hearts of the everyday man and just IPO in Oct last year at 77 cts (current share price 97.5 cts). They were previously owned by private equity in London.

Not to worry that they have SGD 342 mio in debt already (as of last year) and their market cap is only SGD 546 mio versus their MTN size of SGD 500 mio. That is alot of borrowing to do ! But it is, afterall, a consumer credit business and the best part, they are going to Indonesia – the new darling of EM.

Divd yield estimated at 2.3%.

The million dollar question is to buy the equity or the bond ?

This bond issuance, if it is used for refinancing, would be great for the equity given that they are probably borrowing at a higher rate from the banks at the moment. However it would seem this is to facilitate their Indonesian expansion.

Do note that whilst this is a senior bond, it is subordinated to all the secured assets on their books.

Taken from Phillips.

“Per prospectus, Credit is funded mainly by  Asset Securitization Programme 2012 with HSBC
– Interest rate fixed at 1) 5.5% per annum for first S$94million, and 2) SOR + Spread for balance amount.
– Programme 2012 will expire on 21 Sep 2018 or in 2017, at the option of HSBC.
– S$105.9 million were drawn down as of date of lodgment of prospectus.
Senior Loan Facility with HSBC, OCBC, and HWANGDBS
– Interest rate of KLIBOR + Spread up to RM350 million. Courts entered into a floating-to-fixed interest rate swap, fixing KLIBOR for borrowings of up to RM 265
million, resulting in effective rate of interest rate of 6.6% per annum up to RM 265 million.
– Facility has a tenor of 5 years. Revolving credit facility in the first 3 years, before converting to fully amortizing term loan facility at the end of third year.
– RM253 million drawn down as at 31 March 2012
Management has guided that they are looking to borrow smaller amounts from two to three banks, as opposed to one bank, to reduce risk of not being able to increase
borrowings or extend loans tenure at favorable rates.”

And another interesting fact is that 57% of their sales in Malaysia is for goods on credit.

My portfolio manager friend (who will not be buying this bond) thinks that this issue will be mainly retail demand. The company is still 2/3 owned by private equity and thus, their interests will be to keep the share price higher for their exit.

But buy anyway if the coupon will hold the 5% handle. Ride the consumer credit boom. Retail demand will be huge and the bond is likely to see a decent rally to 4.75% at least, in my opinion. Books are >200 million now.

Next issue please …. Ruchi Soya ? Indian soya sauce ?