another article found by boon
www.ifrasia.com/eratat-seals-dim-sum-abs/21097640.article
Eratat seals Dim Sum ABS
IFR Asia 805 - July 20, 2013 | By Nethelie Wong
Eratat Lifestyle has completed a Rmb134m (US$22m) securitisation in the first private placement of asset-backed securities in the offshore renminbi market.
The company placed Rmb134m of 12.5% bonds with 82.5m warrants to SWAT Securitisation Fund, a SPV of Sun Hung Kai Financial. SWAT, in turn, offered a Rmb106.8m senior tranche of ABS to investors and a Rmb27.2m junior tranche to Sun Hung Kai Financial.
The Singapore-listed apparel-maker is paying an annual coupon of 12.5% on the two-year bond, issued at 74.44. That translated to a hefty yield of over 30%, leaving plenty of room for a securitisation transaction.
However, the interest rates on both the senior and the junior ABS tranches were not disclosed. The exercise price is S$0.25 for each warrant , which represents an 85% premium to July 15’s share closing of S$0.135.
Proceeds will be for expansion. Eratat’s gross profit ratio was at around 18.4% for 2012.
Rival bankers saw the deal as a high-yield structured product rather than a proper ABS as the bankruptcy-remote and the relatively low interest rate features are not significant in this case.
The bond has a charge over 121,525,000 shares in the company directly and indirectly in the hands of Lin Jiancheng, the company’s CEO. The shares represent approximately 25.59% of the existing issued share capital of the company.
The transaction was the combined result of the sudden liquidity squeeze in the onshore market in late June/early July and a reverse enquiry from high-yield investors chasing yields.
The reason the warrants were bundled into the bonds was that the company’s share price had hovered at lows recently and it would have been very unfavourable to existing shareholders if convertible bonds had been issued instead.
As for the use of the ABS structure, it was to boost the confidence of investors in buying into the deal as Sun Hung Kai Financial is retaining around 20% of the transaction as a junior tranche. Sun Hung Kai Financial acted as arranger, as well as co-investor, on this transaction.