GIL has provided a series of announcement of the outmost importance this evening - i) Release of FY 2011 results and declaration of 2H dividend and ii) Proposed Rights Issue.
i) GIL RECORDED A JUMP IN PROFIT OF 84.8% FOR THE FULL YEAR 2011
http://info.sgx.com/webcoranncatth.nsf/V...D00333C75/$file/01a_20120207_GIL_FY2011_ResultsAnnouncement.pdf?openelement [Press Release]
http://info.sgx.com/webcoranncatth.nsf/V...D00333C75/$file/01a_20120207_GIL_FY2011_ResultsAnnouncement.pdf?openelement [SGX Report]
http://info.sgx.com/webcoranncatth.nsf/V...D00333C75/$file/01c_20120207Declarationofdividend2H2011.pdf?openelement [Dividend]
http://info.sgx.com/webcoranncatth.nsf/V...D0033FFF2/$file/02b_20120207CurrentAssetReview4Q11.pdf?openelement [Asset Review]
http://info.sgx.com/webcoranncatth.nsf/V...D0033FFF2/$file/02a_120207_GIL_FY2011Presentation.pdf?openelement [PPT Slides]
A fairly steady result from GIL with rental income from its 2 aircraft, dividend income from its FLY Leasing shares and interest income from its legacy assets and recently purchased CLO and CDOs. GIL generated net operating cash-flow of $12.56 million and after servicing debt interest and debt principal repayment, it generated free cash-flow of $9.43 million of which $8.25 million was used to pay the dividend of 1.5 SG cents per share. It also made $22.0 million worth of acquisitions (primarily CDO and CLOs) while divesting $4.1 million worth of assets and received principal repayment of $14.8 million. This is one aspect of GIL which caught my eyes initially - dividends are generated from operating cash solely. There is no worry of self-liquidating as principal repayments are retained at Group level (barring defaults).
The B/S has remained healthy with $42.2 million worth of cash and $16.9 million worth of debt. The cash pile was inflated by the A$8.0 million redemption of Pepper Note 6 in Dec 2011. In addition to the current cash position, GIL had also signed agreements with FEDEX to divest its 2 aircraft currently on lease to Thomson Airways in April 2013 for US$2.65 million gain (book value: S$31.85 million). This means that by end of 2Q 2013 barring any new investments, the cash position will be significantly increased while the revenue will drop due to loss of income from Pepper Note 6 and the 2 aircraft (but partially offset by reduction of interest expense if loans are repaid). It does seem that STAM is trying to 'renovate' the Fund completely judging by the hoarding of cash and divestment of legacy assets and this brings us to the second part of the announcement...
ii) PROPOSED RENOUNCEABLE NON-UNDERWRITTEN RIGHTS ISSUE OF UP TO 275,104,260 NEW ORDINARY SHARES IN THE CAPITAL OF THE COMPANY (THE “RIGHTS SHARES”) AT AN ISSUE PRICE OF S$0.128 FOR EACH RIGHTS SHARE, ON THE BASIS OF ONE (1) RIGHTS SHARE FOR EVERY TWO (2) EXISTING ORDINARY SHARES IN THE CAPITAL OF THE COMPANY HELD BY SHAREHOLDERS OF THE COMPANY AS AT A BOOKS CLOSURE DATE TO BE DETERMINED, FRACTIONAL ENTITLEMENTS TO BE DISREGARDED
http://info.sgx.com/webcoranncatth.nsf/V...D00350145/$file/03_20120207ProposedRenounceableRI.pdf?openelement [Announcement]
Personally, I was shocked to see this as GIL doesn't have any outstanding debt and have a pretty large cash pile. This was an unexpected development and I look forward to more details on utilization of the proceeds. The only SSH (and Chairman) has agreed to take up his share of the rights. This is the second rights issue in 14 months from GIL. Granted, the first rights issue was fairly successful judging by the increase in DPU from 1.00 cents to 1.50 cents but I am not sure whether can it repeat this feat since the current dividend yield > 9.5%. The rationale of the rights:
Quote:Assuming that the Rights Issue is fully subscribed, the estimated gross proceeds of the Rights Issue is approximately S$35.2 million and the net proceeds of the Rights Issue, after deducting estimated expenses of approximately S$220,000, will amount to approximately S$35.0 million (“Net Proceeds”).
In view of the purpose of the Rights Issue as set out in further detail below, and in the reasonable opinion of the Directors, there is no minimum amount which must be raised from the Rights Issue.
On 5 December 2011, Shareholders approved the expansion of the Company’s investment policy to include investments in assets in different sectors through different means which include but are not limited to direct asset ownership, swaps, credit default swaps, debts, warrants, options, convertibles, preference shares, equity, guarantees of assets and performance, securities lending and participating loan agreements (but excluding direct investments in real estate and commodities).
In light of the Company’s expanded investment policy, the Net Proceeds will provide the Company with a ready source of funds which can be deployed for such investments. Some of the investment opportunities that the Company come across involve larger outlay per item, compared to past investments made in 2010 and 2011. It is with this in mind that the Board is once again approaching shareholders for a rights issue to build a bigger war chest to take advantage of the current disruption in the world markets and opportunities that may arise.
The rationale of the rights issue coupled with the expansion of the investment mandate in Dec 2011 SGM points to clinching of potential mega deals (relative to its currrent size) in 2012 which could transform GIL. However, without any details of such an investment (if any) or plans to utilize the $25 million net cash (and $30+ million sale proceeds in Apr 2013) and the drop in revenue from the redemption of Pepper Note 6 and sale of two aircraft in 2013, I am pretty apprehensive of a potential dividend decline.
Ultimately, the fate of funds like GIL and MIIF boils down to managerial ability hence STAM plays a pivotal role here. The Management is paid to add value into the Fund by buying low and selling high while trying to maintain a sustainable dividend profile with minimal (or no) debt. Assuming full subscription of the rights shares and the successful sale of the aircraft Apr 2013, STAM would have in excess of $100 million cash to invest. I will be watching this Fund closely. I wonder how the Market will react to this tomorrow.
(Vested)
PS: This is not the usual yield trust/fund.