Unexpected move: SIIC Environment rolls out 1b new shares

Each stock is $0.158 apiece.

In a move that caught analysts by surprise, SIIC Environment announced on Tuesday evening that they are launching 1b new shares at $0.158 apiece.

According to Maybank Kim Eng, these new shares represent 11.6% of the company’s current share base. Funds raised from the shares could be used for more acquisitions.

“While fund raising is a necessary evil as SIIC embarks on an acquisition path, this share placement came as a surprise to us considering its comparatively more lowly-geared balance sheet. We had earlier expected SIIC to raise debt instead. In our view, SIIC could be building up its war chest for future acquisitions. Part of
the proceeds could be used to finance the recent acquisition of Longjiang Environmental Protection Group costing CNY405m,” noted Maybank Kim Eng analyst Wei Bin.

Here’s more from the report:

SIIC announced a share placement of 1b new shares, issued at SGD0.158 apiece, priced at a reasonable 7.6% discount to its pre-trading halt price of SGD0.171. These new shares represent 11.6% of its current share base. With SGD158m cash in hand, SIIC’s FY14E net gearing ratio is expected to improve to 18.0% from 49.3%.

Given its 1m ton/day capacity increase target, more acquisitions could be on the cards. Without this, the EPS dilution could be as much as 11%.

This share placement, albeit dilutive, will strengthen SIIC’s balance sheet, providing it the ammunition for future acquisitions. We lower our TP to SGD0.20 (previously SGD0.22), after adjusting for an 11% increase in share base, pegged to an unchanged 30x FY15E P/E.

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