Saturday, July 3, 2010

China Animal Healthcare: Lets hope is isn't sour (china) milk

for those who do not have internet connection or haven't checked the SGX website, China Animal Healthcare recently announced that international fund Blackstone has subscribed in both the drug maker's debt and new ordinary shares (via placement).

the good news in my opinion is that CAH is very likely to surge next week and that there is a lot of pressure for the company to list in Hong Kong due to the slightly punitive terms of the bonds in the event of the listing not happening. moreover, the new ordinary shares are placed at $0.35.

the interesting situation really is, is the issuance of debt really necessary considering that any expansion can really be funded by the huge cash pile that is supposedly sitting in the company's books? mind you, the current gearing is 0.02 which means that there is really lots of space to use the cash, rather than increase debt.

hence, china milk comes into my mind. the company had an interesting expansion strategy. it also had a very persuasive CFO and a very large pile of cash. However as we know, the CFO was only in charge of Singapore operations and that the company had so much difficulty repaying its outstanding bond issue till the company got suspended, much to no one's surprise.

to be forthcoming, i am invested with 4 lots and i do hope that everything will turn out fine. nonetheless, there is that niggling thought that a situation similar to China Milk will occur. what is helping me keep the faith with this vaccine maker is that Blackstone is the smart money. if they are willing to join so many investors and pump money into China Animal Healthcare, there is some assurance that things are not the bottom line is, for those who are invested, keep track of the insider trades as well as any conversion of debt. if Blackstone increases its stake further by converting the bonds into equity, it generally means a good sign. also, there is 5 years left for the bonds to mature. so take note that problems will only surface closer to the end of those five years.

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