The latest fund raising by Eratat has certainly caused concern to many people. I believe Eratat’s management must have done their homework and have considered other sources of funding for their business expansion before deciding on the bond and warrant issue. I think it is more important for those with interest in Eratat to ask themselves the following questions –
1. Has Eratat taken on funding significantly beyond market rates or exposing itself to excessively high business risk? If so, this would be a refection of bad management.
2. The additional fund raised by Eratat is expected to contribute eventually to Eratat’s bottom line. How significant would this contribution be?
From my understanding, Eratat cannot afford to rest on its laurel and be overtaken by others in its business. It must therefore expand and upgrades if it wants to survive or stay ahead in the business competition. Business growth has to come through an increase in the number of distributors. The appointment of just one new distributor with several outlets would have an immediate impact on Eratat’s order book, as the distributor must stocks all its premises with Eratat products in order to open for business. The RMB 100 million raised from the bond issue would not be able to support the business of many additional distributors partly because of Eratat’s generous credit term.
I believe shareholders would have a clearer picture of where the company is heading after the next one or two quarters now that the bond issue is out of the way.
wow..a good discussion by the two camps. By the way, has anyone clarified with CFO, if the principal amt already includes the 12.5% interest?
The deal seems to be addressing depressed share price due to the lack of investment interest than the need for fund. Otherwise it can definitely use internal resource or go to the bank as many have pointed out.
There is little risk for the 2 yr commitment as even with S$6.75m/yr from the cost of funding [discount + 12.5% interest], Eratat can easily pay with its net profit per yr of S$27m......a high interest cover of 4.15 times.
Let's hope Eratat performs a good entry into Shanghai which I think it should given its past track record
I sent a request for information earlier today to eratat, and received an initial response that she would reply my question but needed a few days. I'm going to be traveling so I might not be able to post the reply in a very timely manner. However, when I do get it, I will try to post it as soon as possible.
It is interesting to note that Eratat has uped its ante in driving the Eratat's brand thru setting up about ten 鳄莱特生活馆 in key cities such as beijing, shanghai and Guangzhao till Apr 13, promoting eratat lifestyle brand