SINO GRANDNESS (Lim&Tan)

S$0.42-SIGR.SI

􀁺 Sino Grandness will be issuing Rmb100mln zero coupon convertible bonds due in Oct’2014 via issue manager Sun Hun Kai Investments. We understand that several Taiwanese and Hong Kong funds will be subscribing to the convertible bonds.

􀁺 While convertible bonds have caused problems for S-Chips in the pass due to early redemptions we note that the terms set out for Sino Grandness will likely be viewed favourably as the convertible bonds do not have an early redemption option (can only be redeemed in Sept’2014) and can only be converted into shares of 100% wholly owned subsidiary Garden Fresh HK (the fruit and beverage division) and not into new shares of the publicly listed entity.

􀁺 CB holders can decide if they want to convert their holdings into shares one month before Oct 2014.

􀁺 The maximum and minimum dilution of Garden Fresh HK would be 19.9% and 6.7% depending on the financial performance of the subsidiary.

􀁺 Garden Fresh HK is targeting to increase their profit to more than Rmb140mln in 2012 and more than Rmb250mln in 2013, up from Rmb70-80mln this year.

􀁺 The estimated net proceeds of Rmb80mln would be used to expand their production facilities as well as increase their sales and promotional activities.

􀁺 The positives are that the company is raising funds without immediate dilution and at zero coupon to help them expand their beverage business while potential dilution will only come in Oct 2014 and it is at most 20% at the subsidiary level (Garden Fresh HK).

􀁺 We have a BUY on Sino Grandness.