SingPost made an announcement that they will be proposing to issue 200 mil worth of bonds:
The Board of Directors of Singapore Post Limited (the “Company”) wishes to announce that it proposes to issue up to S$200,000,000 in principal amount of fixed rate notes due 2020 (the “Notes”). DBS Bank Ltd. and UBS AG, Singapore Branch have been appointed as the joint lead managers for the proposed issue of the Notes.
The Notes, which will be issued in the denomination of S$250,000, will have a tenor of 10 years from their date of issue and will be cleared through The Central Depository (Pte) Limited. The Notes will be offered by the Company in Singapore pursuant to exemptions invoked under Sections 274 and 275 of the Securities and Futures Act, Chapter 289 of Singapore and in any other jurisdictions pursuant to any applicable exemptions available to the Company.
The Notes are expected to be rated AA- by Standard & Poor’s Rating Services, a division of McGraw-Hill Companies Inc (“S&P”). S&P is expected to revise the Company’s rating outlook from stable to negative. The rating of the Company’s existing S$300,000,000 3.13 Per Cent. Bonds Due 2013 is expected to be affirmed by S&P at AA-.
Application has been made to the Singapore Exchange Securities Trading Limited (“SGX-ST”) for the listing and quotation of the Notes on the SGX-ST. Admission to the Official List of the SGX-ST and quotation of the Notes on the SGX-ST is not to be taken as an indication of the merits of the Company, its subsidiaries, its associated companies (if any), its joint venture companies (if any) or the Notes.
The Company expects to use the net proceeds arising from the issue of the Notes (after the deduction of issue expenses) to finance new investments as part of its growth strategy. The Company also expects to use the net proceeds to fund anticipated capital expenditure and working capital requirements.
So how does this affect SingPost? I am not really sure, thats alot of debt to borrow. Their current long term debt stands at 300 mil. 200 mil is a huge increase.
It is likely 150 mil will be used for capex to replace their existing postal processing machinery. That will leave 50 mil for working capital and investments.
My question is, isnt current free cashflow enough to cover that???
Take a look at my Google Spreadsheet [link here >>]
Free cashflow for last 3 years have been 150 mil. They pay out 120 mil for 6.25 cents for the last 3 years translating to a 5.7% – 6% yield.
That is very good considering the risk your money is in. SingPost have a business that is defensive but its under competition and thus margin is underpinned.
That is why they are looking to new investment to diversify to gain more alternative cashflow.
So you still left 30 mil each year to pay for the big capex of 150 mil coming in 2014. thats near 5 years. I guess they don’t want to thread such a fine line.
I think its ok for them to do that. Given the choice if i am in management i will take this step as well.
As a yield investor you should be concern if the sales margin will be underpinned further. Watch to see if their new investment yield cashflow improvement. an improvement in this area is likely to bring dividend yield improvement.
Look to see if SingPost can generate significant free cashflow to pay off the 200 mil as well.
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