SGD New Issue : Nam Cheong 3Y 6+%

NAM CHEONG SGD 3 YR

Issuer: Nam Cheong Limited
Status: Direct, unconditional, unsubordinated and unsecured Notes
Rating:  Unrated
Format: Reg S, S274 & 275 of Singapore SFA, issued off the SGD600m Multicurrency Medium Term Note Programme
Tenure: 3 Years
Initial Price Guidance:     Mid to High 6s
Size:  TBD
Payment: Semi-annual, actual/365 (fixed)
Use of Proceeds: Refinancing the Issuer’s existing SGD110 million  6.00% bonds maturing on 5 November 2015
Redemption at Option of Noteholders upon Cessation
or suspension of Trading of the Issuer’s shares: At par, in accordance with the Programme
Redemption for Taxation Reasons: Yes, in accordance with the Programme
Details:SGD250K/MTN Programme/Singapore Law/CDP
Listing:   SGX-ST
Joint Bookrunners: CIMB, DBS and RHB
B&D Bank:  DBS
Timing: This week’s business, as early as today
– New NCL SGD 3yrs announced with strong anchor orders post SG roadshow
– IPG at mid to high 6%
– Timing: This week’s business, as early as today

**Comparables (mid price):
Ncl 5% 2017 – 99.00 5.50%
Ncl 5.05% 2019- 95.00 6.45%

3 year interest rate at 1.69% today which makes this a hefty premium of about 5% (plus or minus) depending on coupon.

Compared to their last issue in Aug last year which paid 3.35% over the 5 year swaps, this issue is considerably wider yet not quite as much as the premium they paid for their very first issue back in 2012 for their 6% 3 year paper, when 3 year rates were at 0.55%.

Share price hanging at their 18 month lows.

ncl share price

Recent numbers show that net profits have reduced dramatically for 1Q15 compared to the same period last year although their 2014 results were pretty healthy, registering a 47% rise in full year profits over 2013.

Orderbook shrank from RM 2 bio back in Aug 2014 to RM 1.6 bio in Mar 2015 but they are seeing small deals coming in.

They have also recently approved a share buy-back programme.

ncl buyback

 

The O&G sector has been hard hit in the past 6 months although we are not seeing capitulation as the order books run down which means that the next few months will be interesting especially with re-financings coming up.

That Nam Cheong remains in a position to tap markets is a bonus for them on their strong market presence, being the largest OSV builder in Malaysia.

So, 6.5% ? Well they are paying about 5.26% in dividends because market cap is about 40% lower than the last time they issued.  It looks fair and they need not resort to rights issue or the convertible bond route that the slightly more distressed and highly leveraged companies are doing.