(03-04-2015, 05:44 PM)Oldman9 Wrote: [ -> ]Hi buddies
Can anyone help oldman on the valuation of Garden fresh if its listed? Hope someone can enlighten me.
Thank you
Oldman9
Holders of 2011 and 2012 bonds expect a high subscription price of Garden Fresh IPO shares. As of now, they have a claim on a 23.4% stake of Garden Fresh.
Bondholders introduced interesting penalty features to spur Garden Fresh to get itself listed.
First, if an application for listing is not submitted, 2011 bondholders will receive a premium based on 25% compound interest. For 2012 bondholders, the premium is 20% compound interest.
Second, if the application is not approved by the exchange subsequently, the premium is reduced to 15% compound interest for both 2011 and 2012 bondholders.
Bondholders also protect themselves from ending up with low-price Garden Fresh shares -- if the IPO subscription price is lower than 9 times earnings, they can walk away and receive a premium of 10% compound interest.
When RMB 100m 2011 bonds matured in Oct 2014, holders of RMB 80.5m gave up their rights to receive RMB 157m (= 195% * RMB 80.5m). They likely thought that when Garden Fresh is listed, the value of their 5.37% stake will be much higher than RMB 157m.
(By the way, 195% is 1.25*1.25*1.25.)
It is obvious that their decision to forego the certainty of RMB 157m back in Oct 14 is not risk-free.
First, if Garden Fresh fails to get listed despite submission of listing application, say by Oct 2015, bondholders will receive RMB 141m (175% * RMB 80.5m), which is lower than the RMB 157m that could have been received a year ago.
Second, if Garden Fresh IPO share is priced lower than 9 times earnings, bondholders will receive only RMB 118m (146% * RMB 80.5m) if they walk away.
Given that a price earnings ratio lower than 9 is deemed to be unattractive, will it be reasonable to assume that the bondholders had expected a PER of at least 12 when they gave up RMB 157m back in Oct 2014?
If its 2014 profit turned out to be RMB 320m, Garden Fresh would be worth RMB 3,840 m for PER of 12. And holders' 5.37% stake in listed Garden Fresh will have a value of RMB 206m, which may not be enough to compensate the foregone RMB 157m and a one-year wait?
If PER is 15, the 5.37% Garden Fresh stake will be worth RMB 258m. Is this amount a sufficient reward?