Equity (placements, rights issue etc):
The amount that could be raised would be limited due to Eratat's depressed market share price (which currently is at below PE of 2.5x). Share placements also translate into shareholding dilution at too cheap a price for existing shareholders.
Bank loans:
Again, the loan quantum may be limited to a fraction of the borrower's assets, and the bank lending is also highly subject to China's prevailing national credit policies.
The effective borrowing costs often far exceed the interest rates.
In addition, banks require collaterals such as mortgage of fixed assets, or personal guarantees, etc. The most risky collateral are cross-guarantees from unrelated third parties who, in return, require Eratat to guarantee their loans. "This is not uncommon in China and represents too high a risk for us to bear over and above the transaction costs," said Ken.
Eratat could continue to grow organically using its internal funds (it had RMB502 million cash as at end-June 2013) but it faces the risk of competitors catching up. For the past 1-2 years, amid uncertain market conditions, it had been seeking additional funds to enable it to grow faster.
ERATAT LIFESTYLE: Sheds More Light On Bond-Cum-Warrant Issue left many questions unanswer.
1) Eratat have RMB502 million yet even cannot secure RMB100 million loan?
2) How Eratat utilise it's RMB502 million for it's business operation?
3) Eratat able to generate cashflow positive yearly, last year by more than RMB200 million yet so desperate for cash? (More than double the amount it desperately want to loan)
4) Any companies able to generate such impressive cashflow yearly maybe trading at over PE 20x. Why such great performance yet trading only at at PE2.5x
5) Eratat NAV of 44 cts and half of it is cash, why trading at only 13 cts? (Either the market know what we don't know or the market are FOOL.)
6) Is it at this point of time Eratat business is facing strong head wind and the RMB100 million loan is to help the company from sinking?
7) Eratat having cashflow of RMB502 million not good enough to guarantees for loan from bank for RMB100 million?
It's a big joke why some people are defending the company day and night instead of the CFO of Eratat.
newbiestock wrote: bestworld, fact is old distributors are still on 120 days credit... some cash buffer is still good.
that is exactly why they already have few 100m tied up as receivable!!! If what they claimed us true the new distributors wil only be give 60 days credit...100m cash can easily generate 600++m in a year.... So, what is their plan for the 500 m cash!!!
"Is it at this point of time Eratat business is facing strong head wind and the RMB100 million loan is to help the company from sinking?"
- Rock, if eratat is having head wind, u think SHK will lend money to them? The cash are of course real. and if really the biz is sinking, why announce dividends and pay on aug 20th. Might as well delay the dividend payment another few more months.
- bestworld, they do have plans how to use the cash. just wait.
i hv said more than enough i need to say. I am comfortable holding and I do think the company prospects are very bright. for those who have attended the briefing and hv followed up Eratat closely will know.
i guess i need not say further... wait for Mr Market to wake it up.
I think some people here are over-invested in Eratat and have fallen in love with the company. Whatever questionable or ambiguous actions that are done by the company are always somehow rationalized and looked upon positively. They cannot afford to lose so they subconsciously force themselves to only things with rose-tinted glasses.
The shareholder meetings are also quite useless because the CFO is not sufficiently grilled on their questionable actions of late. Questions such as the below are not sufficiently put forth to them. Shareholders tend to go easy on them because they also psychologically want to believe that everything is positive. They even do the job for the CFO and Investor Relations by defending the company day and night here even though they haven't got the answers to the questions below.
Amazing what happens when one falls in love with a stock.
"
1) Eratat have RMB502 million yet even cannot secure RMB100 million loan?
2) How Eratat utilise it's RMB502 million for it's business operation?
3) Eratat able to generate cashflow positive yearly, last year by more than RMB200 million yet so desperate for cash? (More than double the amount it desperately want to loan)
4) Any companies able to generate such impressive cashflow yearly maybe trading at over PE 20x. Why such great performance yet trading only at at PE2.5x"
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