SGD New Issue Review : Ausgroup Limited 2Y 7.5%

ISSUER: AusGroup Limited
SERIES:  001
STATUS: Direct, unconditional, unsubordinated and  unsecured Notes
RATING: Unrated
FORMAT: Reg S, S274 & 275 of SFA, issuance off  S$350 Million  Multicurrency Debt Issuance  Programme
ISSUE SIZE:  TBD
TENOR: 2 years
ISSUE DATE:  [●] October 2014
MATURITY DATE:  [●] October 2016
INITIAL PRICE GUIDANCE:  7.5% area
REDEMPTION AT OPTION OF NOTEHOLDERS UPON CESSATION OR
SUSPENSION OF TRADING OF SHARES:    At par, in accordance with the Programme
REDEMPTION FOR TAXATION REASONS:   Yes, in accordance with the Programme
REDEMPTION AT OPTION OF HOTEHOLDERS PURSUANT TO CHANGE
OF SHAREHOLDING EVENT: At par, in the event that a “Change of Shareholding Event” occurs. (See Para 35 of  draft pricing supplement)
PAYMENT:  Semi-annual, actual/365 (fixed)
DETAILS:  SGD250K/ Multicurrency Debt Issuance Programme /Singapore Law/CDP
LISTING:   SGX-ST

– New Ausgroup SGD 2y announced post SG roadshow. Deal is anchored
– Initial price guidance at 7.5% area
– PB selling commission: 75cents

– Comps:
Ezion 4.6 2018 at 101.15, 4.27%
Swiber 5.55 2016 at 100, 5.55%
Ezra 4.75 2016 at 100.75, 4.20%

Ho ho ho ! Tsk Tsk Tsk !

Anyone who had criticised United Energy last week and buys this bond must be $%&(*#@ !!!

Market Cap : SGD 230 mio

Share price – not pretty in past week (note the big gap down).

Bringing out this bond would give the share price some much needed support for a loss making year that has seen them issue stock not once but twice –  23 Jan 2014 at 0.17 and  30 Jun 2014 at 0.37.

 

Ezion owns a 6.9% stake in this company and upon Googling them, I found a highly controversial intercompany transaction that got investors talking.

Ausgroup had bought 2 loss making Australian subsidiaries from Ezion back in August this year for a valuation that was 4000% higher than the reported share capital of those companies. https://sg.finance.yahoo.com/news/ausgroup-limited-why-paying-55-080000021.html

This is after signing an MOU with Ezion as early back as April to collaborate on opportunities in Australia.

Tricky business. A bit like the Swiber and Vallianz relationship, I suppose.

Worth noting is that SGX queried the company on their annual reports recently, asking why there was no disclosure of the total renumeration paid to the top 5 key management personnel and also why there was no comment on the adequacy and effectiveness of their internal controls.

Interesting.

The company is making an effort to move away from the construction business where I understand they provide scaffolding material, towards the more lucrative mining and the O&G business which I am highly unsure about these days as the commodity boom appears to be fizzling.

7.5% for 2 years ?

Unfortunately, I cannot see any value even at 7.5% over and above the opportunities out there that are coming fast and furiously and there is no compelling reason to be buying what I consider as a gamble especially in the current uncertain credit climate and it’s lack of parent company support.

Now, that as far as my personal logic would take me.

Going off on a flight of fancy, I can imagine who would be in a good position to buy this bond.

Imagine if I were a substantial stakeholder in the company and do not expect to receive dividends this year. Pledging my shares in return as an anchor on the deal would be a good idea, with a decent haircut of course. And perhaps negotiating to get the rebate on bond price too, because of my position as anchor.

Hmmm, that would work out, if it works. Selling the bonds at 100 (to greedy retail investors) after they have been successfully launched would net me an instant profit too, if I cannot wait for the coupon.

Nice work except I am just an ordinary investor and there are some nice bonds in the USD space that is giving the 7% return for potentially less risk. Actually, it may even be worth looking at United Energy again.