2 years from now. Warrant conversion price at 25 cents.
"The Company shall use all of the proceeds from the exercise of the Warrants for working capital purposes, or to effect repayment of the Bonds upon redemption, as the Company sees fit. Pending the deployment of the proceeds for the purposes mentioned above, such proceeds
may be deposited with banks and/or financial institutions, INVESTED in short-term money markets and/or MARKETABLE SECURITIES, or used for any other purpose on a short-term basis, as the Directors may, in their absolute discretion, deem appropriate in the interests of the Group.
-> Marketable securities?
Is that an indirect hint for sharebuyback? from today's price, if the bb push it beyond 20 c, the capital gain should be more than enough to pay for the 12.5% interest p.a which they need to pay...
Ya finally.... But this one no trading halt one.... Very steady... Newbiestock, I dun really understand y exercise price at 0.25 when now price is only 0.132? Does it mean that they may push d share price higher?
hmm... the opening of self-owned flagship shops looks interesting as cash from the sales in these 10 shops should be realised immediately the goods are sold, so no credit needed. And that should ease cashflow and stop the growing trade receivables.
Does eratat also intent to be the designer cum retailer at the same time?
i believe they will pick staffs from their own training academy.
A marketing showroom building for RMB 6.5 million (SGD 1.3 mil). To start their direct consulting sales??? this price looks ok since Workers Party also spend around a million SGD for their building. Property in shanghai is equally expensive.
10 shops for RMB33.5 mil. That means each shop cost about SGD670K. Is this amt justifiable? Any views from someone who has experienced in prime retail area?
The outcome of the market tmr will decide if the market likes this bond issue or not.
With the opening of 10 shops and a showroom, it should zip up those who say Eratat lacks growth. And, let's see over the next 1-3 mths, if they will announce any new distributors or not.
so, if after two years, the warrant holder can choose whether to exercise or not at 25 cents.
if price goes beyond 25c, let's say 30 c after two years, the warrant holder will only need to pay 25 c instead of the market price 30 cents. so, the moment the warrant is converted to shares, the warrant holder will earn capital gain of 5 c and eratat will hv a net gain in cash from the warrant conversion. this is just a simple analogy.
of course, if price is still below 25 c after two yrs, then it makes no sense for the warrant to be exercised and total no of shares remain unchanged.
Oceangrace wrote: Ya finally.... But this one no trading halt one.... Very steady... Newbiestock, I dun really understand y exercise price at 0.25 when now price is only 0.132? Does it mean that they may push d share price higher?
Been reading the posts and think that a few interesting questions and opinions have been made.
My own take is this:
1. The bond interest rate seems quite high at 12.5% per annum, but looking at the quantum, it's something that eratat should be able to handle quite easily. If they want to dig into their cash reserves, it's not an issue. If they want to fund it with the exercise price of the warrents, again that's a good option (as long as they can get share price to above 25 cents).
2. Going in with their own stores and seeking distributors is a tested strategy used by various firms. Starbucks, for example does this. The exposure and branding of their own stores create enough justification and proof for distributors to jump the wagon and sell the product. That's provided they do a good job and create the necessary buzz. Given their track record, I don't believe this would be too big of an issue, especially since they have been studying the market for some time.
3. The warrant price of 25 cents is not surprising in my opinion. It merely reflects what eratat lifestyle would deem as a reasonable price for their shares. In fact, warrants are typically priced below fair expectations - meaning that eratat would value their fair value as above 25 cents. An exercise price is that so out of the money would be worth little to the bondholders and so the bondholders should feel like the shares can hit above exercise price with a reasonable sense of comfort or confidence. The fact that the number of warrants issued is relatively small compared to share float is a confidence booster. To get a handle of this, it's often good to ask yourself what the bondholders are willing to get in exchange for the provision of capital and other aspects.
4. From point 3, we have to look at what the bondholders represent in terms of bargaining power. I believe they have a much stronger bargaining power than eratat. Would they be happy to risk their capital for 12.5% returns per year. To put it into perspective, how many investors would be willing to risk their money (for example - there were individuals who were very against eratat) for such a return? Many investors tend to want multi-bagger returns when investing in small caps - and they tend to think that it is achievable. Yet, these investors do not have the bargaining power, the resources to do due diligence, or the resources to conduct rigorous analysis. If you were the bondholders, what sort of returns would you want in order to entice you to invest in eratat and potentially contribute through other means? (e.g. eratat mentioned about being able to access to new investors). Personally, I think 12.5% return per year isn't enough. From the structure, the only other ways to profit would be through the warrants or through open market purchases.
5. Eratat's options to use the money seem reasonable, although a large chunk is conveniently left for working capital purposes. Yet, we do know that working capital has always been an area where they have had to manage in order to keep operations running smoothly. For me, it's a reasonable apportionment of capital... and I'm ok with them having the "get out of jail free" option of using the capital for uses which they deem fit. I do hope they will use it for some share repurchase or to develop the business further.
6. Eratat's has built up a couple of interesting resource types - like their training academy and using a concierge service to generate resources. I thin kthese will actually fit better with their own shops, when compared to other distributors. More importantly, the shanghai market do seem like it would be a good fit for implementing such resource components.
Overall, my view is that while the initial cost seems high at 12.5%... I believe that when one takes a holistic perspective, the benefits to be obtained outweigh the costs significantly.
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