Monday, 18 May 2015

Synergy between car parts and mining?

China Automobile Parts made an announcement:

The Company wishes to announce that it has been informed by its major shareholder, namely Guotai International Holdings Limited (“Guotai”) (“Vendor”), via its letter dated today that it had entered into a conditional binding heads of agreement (“HOA”) with Siburan Resources Limited (“SBU”) (“Purchaser”), an Australian public-listed company which is a West-Australian based exploration company with tungsten and gold projects in Australia, New Zealand and Papua New Guinea.
The HOA entails the acquisition by SBU of 100,000,000 existing ordinary shares of USD0.10 each (“Sale Shares”) representing 16.67% of the issued capital of CAP from Guotai International Holding Limited, for a total purchase consideration of RM60,000,000 representing a purchase price of RM0.60 per CAP share.
To satisfy the purchase consideration of RM60,000,000, SBU shall issue to Guotai and/or its nominees 417,360,000 fully paid ordinary shares in the capital of SBU or equivalent to 62.5% stake in SBU (after the acquisition) at an issue price of $0.05 per share, which is equal to the Australian dollar equivalent of RM60,000,000.

Siburan is one of those typical Australian listed mining company, tiny and loss making, often based in Perth. Someone "in the know" told me there are hundreds of those.

A few things are rather odd about this proposed deal.

First of all CAP's shares are priced at a huge premium (RM 0.60), while Siburan's shares are priced at market value (AUD 0.05), why?

Secondly, what is the synergy between a Chinese car parts maker and an Australian listed mining company? I don't quite get it.

Thirdly, Siburan has a marketcap of only AUD 14.6M or RM 42M. To buy over shares worth RM 60M, it has to issue an enormous amount of shares, 417M to be exact, while currently there are only 239M issued.

Fourthly, Siburan (while not even holding enough shares to equity account CAP's earnings, for that it needs to own at least 20% of CAP's shares), will be some sort of holding company for these shares.

In other words, there will be a large group of investors (mostly Australians), who own shares in Australia listed company Siburan, which act as a holding company for 16.7% of the shares of Bursa Malaysia listed CAP, which owns a Bermuda listed company, with all of its operations based in China. By the way, the 16.7% might get diluted in a later stage due to a massive 300M warrants that are outstanding for CAP.

Fifthly, shares of CAP went up, from about RM 0.34 to RM 0.42, interesting because for CAP hardly anything will change, except that one major shareholder will sell some of his shares to a new large shareholder, who will appoint one director of CAP.

To me, it all doesn't make any sense at all. But then again, getting Chinese companies listed on Bursa never made any sense to me, so that should not come as a surprise to the readers.

No comments:

Post a Comment