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Wednesday, 8 October 2008
FerroChina - CIMB
Given the bad timing of the suspension when regional equity markets are bleeding badly this morning, we think it would be prudent to AVOID this stock. We will provide an updated view once the details are available.
• FerroChina requested for a trading halt this morning. The shares were last traded at S$0.545 on Tuesday, down 0.9% from Monday’s close and 12.1% from last Friday’s close of S$0.62.
• We see three possible reasons for the need to suspend the shares
o Profit warning as demand for its products may have decreased given signs that the Chinese economy is slowing;
o Deal with strategic investor may be concluded or called off. Given the collapse in asset prices globally, we think negotiations whether successful or not is going to be protracted.
o Announcement of new financing arrangements/need for renegotiation of existing financing facilities.
• FerroChina’s net gearing as at end June 08 was 0.55x after the company managed to raise cash via two notes with warrants issue in the first half.
Current ratio stands at 1.02x and quick ratio is 0.64x as at end June 08. Slightly more than half of its debt (RMB2.4b) is repayable within 1 year. Total cash balance as at end June 08 was RMB1.0b. If the suspension relates to a need to renegotiate its funding requirements, market is likely to react negatively to it.
• Given the bad timing of the suspension when regional equity markets are bleeding badly this morning, we think it would be prudent to AVOID this stock. We will provide an updated view once the details are available.
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FerroChina (FRC SP; S$0.545)
• FerroChina requested for a trading halt this morning. The shares were last traded at S$0.545 on Tuesday, down 0.9% from Monday’s close and 12.1% from last Friday’s close of S$0.62.
• We see three possible reasons for the need to suspend the shares
o Profit warning as demand for its products may have decreased given signs that the Chinese economy is slowing;
o Deal with strategic investor may be concluded or called off. Given the collapse in asset prices globally, we think negotiations whether successful or not is going to be protracted.
o Announcement of new financing arrangements/need for renegotiation of existing financing facilities.
• FerroChina’s net gearing as at end June 08 was 0.55x after the company managed to raise cash via two notes with warrants issue in the first half.
Current ratio stands at 1.02x and quick ratio is 0.64x as at end June 08. Slightly more than half of its debt (RMB2.4b) is repayable within 1 year. Total cash balance as at end June 08 was RMB1.0b. If the suspension relates to a need to renegotiate its funding requirements, market is likely to react negatively to it.
• Given the bad timing of the suspension when regional equity markets are bleeding badly this morning, we think it would be prudent to AVOID this stock. We will provide an updated view once the details are available.
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