• Conversion price premium of 25%
• Maximum dilution of 7.28%
• Terms more favourable than 2011 exercise

Announced S$170m zero-coupon convertible bonds

OSIM International Ltd (OSIM) announced that it has placed out S$170m in principal amount of zero-coupon unsecured convertible bonds (CBs) to institutional and accredited investors. The CBs have an initial conversion price of S$3.525 per new share, which represents a 25% premium over its closing price of S$2.82 prior to the announcement. The maturity date is on 18 Sep 2019, but there are redemption options for both the issuer and bondholders, subject to certain terms and conditions. The yield to maturity of the CBs is 2% per annum. Assuming full conversion, 48.2m new shares will be issued, which is equivalent to 6.19% of OSIM’s outstanding shares in issue, as at 26 Aug 2014. If an upsize option of up to S$30m worth of CBs is fully subscribed, it would represent an additional 1.09% of OSIM’s issued share capital.

Fund raising exercise comes as a surprise to us

OSIM has a strong financial position, with a net cash balance of S$238.5m as at 30 Jun 2014. Hence, this round of fund raising exercise comes as a surprise to us. According to OSIM, the net proceeds raised will be used to roll out and enhance its well-being and lifestyle business in Asia and beyond (35% of net proceeds), finance potential strategic acquisitions (35%) and for general working capital purposes (30%). We believe OSIM’s organic growth can be easily funded by its strong operating cashflow generating abilities. Hence, it is likely that OSIM could be building a war chest for future acquisition opportunities.

Maintain BUY

It is interesting to note that this round of CBs issuance appears to come with better terms as compared to the CBs exercise which OSIM carried out in Jun 2011. The CBs issued back in 2011 had a coupon rate of 2.75% and no dividend protector for existing shareholders (meaning conversion price would be adjusted downwards each time OSIM paid a dividend). We maintain our BUY rating and S$3.21 fair value estimate on OSIM.

Source: OCBC Research - 28 Aug 2014