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FCCB Repayment Leads To Equity Dilution
In order to repay US$291mn of foreign currency convertible bonds or FCCBs (including the premium), Sintex Industries (SIL) raised Rs2,031mn by issue of warrants to promoters (30mn shares, 11.1% equity dilution) and Rs1,748mn though QIP (qualified institutional placement) (26.5mn shares, 9.8% equity dilution) and US$140mn though fresh FCCBs (101.8mn shares, 37.5% equity dilution). The company, which was able to raise US$140mn though new FCCBs at a mere 15% premium to reference market price (Rs65.74), has to provide high YTM (yield to maturity) of 5.37% and coupon rate of 7.5% for the first two years. Equity dilution to the tune of 58.4% (considering conversion of new FCCBs) is likely to exert further pressure on the already low RoE, thereby capping stock valuation. We have retained our Sell rating on SIL with a revised target price of Rs63 (from Rs68 earlier) valuing the stock at 5x FY14E EV/EBITDA.
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