Good to see you can finally see that Eratat is having to pay back a total of 67 million on a subscription amount of 100.5 million, hence you see why others and I have been saying that the effective annual interest rate is about 30%.
Initially you were in denial and insisting subscription price meant something else, citing your CFA qualifications and all to add credibility to your claims. Let me remind you that pride comes before a fall, and it takes a real man to admit that he was wrong.
Now the question for Eratat shareholders is given this knowledge, does it change your view of Eratat? Why does Eratat have to borrow at 30% interest when it purportedly has so much cash? Do you mean to say it really cannot access any cheaper from of funding? Are banks unwilling to give them loans? Even 10% to 15% interest rates from banks would be superior to this deal of borrowing 100.5 million and paying back 167.5 million.
If you still view this as acceptable, it's your call. Just keep in mind the danger of falling in love with a stock because you've invested too much in it. From that point, a stock can do no wrong. No matter how questionable a decision is, it is rationalized and brushed off. When in love, emotions and sentiment prevail over logic and rationality.
Let me clarify that I'm not saying you're wrong and that Eratat is definitely a dud. No one knows for sure. But no one knows for sure about any stock. You gotta balance the benefits and risks given the information have, logically and objectively assessed. And falling in love with a stock often clouds one's ability to make a logical and objective assessment.
last time, the bonus warrant issed has an exercise price at 30 cents.
if the earlier warrant at 30 c has been exercised, then the CFO won't have a headache, troubling himself with more work to prepare for this bond issue. Every new fund raising incurs expenses and is time consuming.
with 25 c, they already lowered the targets. the last placement did in 2011 was 20.2 cents. and, when they did the placement that time, the market sentiment was bad such as Europe crisis, Middle East Gaddhafl sagae etc.
when the placement in 2011 was announcement, i think it did hit a price of 26 c before retracing back. Then came the sales incentive and renovation subsidy and share price hit around 7+ cents low. at the peak, i think Eratat hit around 38 cents before when it was around its post IPO period.
Bestworld wrote: This is a vey interesting bond exercise.... The exercised price of the warrant is set at a huge premium of 89%!!! In return, the subscription price is lower.....so either eratat don't want SHK to exercise the warrants or they are very confident that share price will break 25c within the next 2 yrs?
so, dun wan to exercise or they confident can break 25 c within 2 yrs, guess the reader here will have to decide bah.
do note exercise of warrant involves share dilution whereas bond issue doesn't. so, i would definitely want any warrant, placement etc to be of a reasonable fair value. if exercise price is below 20 cents, i rather they don't give warrant and just stick to only bond issue.
ya, skeptic. miss out a few parts and overlook it.
end of 2 yrs they hv to pay back principal at RMB 134 mil.
ok. i admit the mistake...
but another point I want to add is
banks in China don't usually offer loans for companies to expand, especially with the tightening. China's different from sg whereby SMEs here can easily get a loan.
if borrowing a loan for property or an asset, yes. can still get a loan because the asset can be put under mortgage.
but if borrow for a company's expansion, it's quite hard to do that in China.
Ok. i am happy Eratat is finally executing their steps to make their ambitious expansion. But i do not deny my disappointment that till now, the management has not done a single sharebuyback to regain shareholder's confidence.
I still be holding and collect the dividends but will not increase anymore shares. Will just maintain the current holdings. i will wait for its Q2 briefing which is likely to be in first 2-3 wks of august. Wlll see what the CFO has to say before deciding what to next.
Know I am not welcome here, but just playing the devil advocate, SIngapore has freedom of speech anyway isn't it? hehehe
Few things to consider:
1) That the bond issue is a good deal to SHK does not mean it is a good deal to shareholders of Eratat. If the bond is listed in SGX, i might be tempted to buy some too. come on 30% return annually.
2) Think about this, I raise 100 million but pay 160 million in 2 years, it means for this deal to be a good deal for shareholders (yield acretive in another words), the expansion returns from the use of this 100 million should be more than 60 million in 2 years, otherwise the whole exercise is a bo liao exercise for shareholders.
Yes, CHina is facing a cash squeeze, that is why a shadow finacing market is booming with interest rate of 12-18% the norm. (But hardly the norm for a healthy finacing system)
SO Eratat is lock out of even the shadow finance? It can't even get a 18-20% deal? SHK has a good deal, not sure if you can use that to say that Eratat is cool ,since SHK invested in it.
My view only, for democratic freedom of speech. haha... forum is for ppl to say what they want, you dun have to agree
Eratat is tiny compared to SHK, there is no strategic value for SHK here, just some easy money off a desperate borrower. Why is Eratat willing to borrow at such poor terms? Perhaps it could be borrowing with no intent to repay i.e. it is committing fraud. Or Lin Jiancheng is a complete idiot. Or maybe something else.
If the accounts are real Eratat cannot be desperate for money. From the IPO prospectus, Lin Jiancheng has been in the business since 1983, that's 30 years this year. If Lin Jiancheng is an idiot he would have gone out of business long ago. So is Lin Jiancheng an idiot or a fraud? Or something else?
this excerpt from another critic in another forum. it's fancy thinking that sees the world in black and white. Analyse his/her writing -- big/small, easy money/desperate, fraud/idiot, real/not real.
it jumps to a big conclusion and is unwilling to entertain a range of possibilities. Oh well, that's what happens when you think you are clever and have some experience and know your math. i think i am smart too, but i have seen so many instances when conclusions from paper analysis didn't eventually match with real-life outcomes. Why? Because there is a lot we don't know and even things we didnt know we didnt know.
For use as working capital to secure the supply of apparel products with the Eratat group to support retail shops owned by the Group and by distributors(approximately RMB60.5 million, or 60%, of the Subscription Price). 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.
The Board is of the view that the Proposed Bond and Warrant Issue is beneficial to the Group as it will allow the Group to strengthen its cash position to grow its business and its access to new contacts and opportunities through the Subscribers' network, thereby increasing EXPOSURE of the Company's SHARES to NEW INVESTOR COMMUNITIES, FUNDS and FINANCIAL INSTITUTIONS in HONG KONG and the PRC.
82,500,000 warrants at exercise price SGD0.25 (100% premium based on today's price of SGD0.125)
Companies limited to 10% max sharebuyback each year.
Total issued shares: 474,912,514
1st year max sharebuyback: 47,491,251
2nd year max sharebuyback: 42,742,126
Total max sharebuyback for two years = 90,233,377
RMB60.5 mil will allow 82,500,000 shares to be purchased at an average price of SGD0.1467.
seriously, I have no idea what Eratat management plans to do. But there seems to be some hints dropped here and there...
SHK main network is only in HK and PRC. SG is not SHK area. If their bonds are issued in sgx, why need to go through SHK? If their bonds are to be issued in Hong Kong, is it a compulsory requirement for Eratat's equity shares to be listed in HSX as well?
If I am the management, I will wack up all the 82,500,000 shares in the first two years, as long as it is under 25 cents. Then at end of two years, reissue the same shares back at 25 cents to the warrant holders and thus get new cash without any dilution. The profits made will be good enough to cover almost of the RMB 60 mil. if they bought back 47,491,251 mil shares in 1st year at average price of 14 c and reissue at 25 c two years later, it will make back RMB 23.7 mil approx. this seems to be quite a no brainer thing to do. The dip in Eratat share price recently is actually an advantage for the company, if this is what in their mind.
assuming this year, revenue and net profit (RMB 180 mil +/-) stays the same and assume they aiming for a 10%-20% growth next year, the current cash reserve and the earnings from next three quarters should be sufficent enough to support their next year working capital needs and thus, this bond issue wasn't necessary. Even though there is no action till now, i still think a share buyback in the near future is still highly probable. Even if the paperwork has been approved, I would think the bond proceeds will have to take some months to clear.
There is something we do not know yet... so hv to wait.. I hope it will turn out to be a good surprise.
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