China Fishery proposes senior notes issuance

Price Target : S$ 1.32


What's new?
China Fishery announced that it's wholly-owned subsidiary, CFG Investment S.A.C. (a company incorporated in Peru) is proposing to issue senior notes.

We understand that the issue will be a "benchmark" size, which is likely to be around US$300m and carry an interest rate of 8-9%. Previously, the Group had issued 7-year senior notes totaling US$225m in Dec 2006 with an interest rate of 9.25%.

According to the announcement, an international roadshow to market the notes will commence on 18 July and the terms of the proposed notes, including interest rate, aggregate principal amount, offer price and final terms and conditions will be determined by the issuer through a book building exercise.

The use of proceeds will be intended for, amongst other things, to:

1) fund the Group's expansion in North Pacific Ocean, and including but not limited to prepayment of an existing longterm supply agreement and entering into new long-term supply agreements;

2) repay outstanding indebtedness; and/ or

3) finance working capital and for general corporate purposes.

Our views:
We are surprised by this issue of senior notes. At this stage, we are neutral to this development. While we believe the proceeds will be used to prepay its long-term supply agreement in its North Pacific Ocean operations - which should lower its costs, we believe the funds needed should likely be in the region of US$150m - US$200m, assuming a 10-year agreement for six supertrawlers. This would leave about US$100m (assuming an issue size of US$300m) of funds to be deployed, which will accrue interest cost to the tune of US$9m/ year. In our view, there is an uncertainty regarding the deployment of remaining funds at this stage.

We are maintaining our forecasts for now, pending further information on interest costs, issue size, etc. However, in the absence of developments regarding the deployment of funds post the issuance of the notes, we expect our forecasts to be trimmed due to higher interest costs.