BreadTalk Group has announced an issuance of S$75m 4.60% notes due 1 Apr 2019, pursuant to the S$250m multicurrency medium term note (MTN) programme established in 2014. Net proceeds arising from this issue will be used for general corporate purposes, including refinancing of existing borrowings, and financing capital expenditure and general working capital.

As of 31 Dec 2015, net debt/equity was at 0.83x. With this issue, an estimated additional S$3.5m of interest expense would be incurred per year, adding some pressure to bottom-line. While the group is focused on rebranding, improving cost rationalization as well as productivity, we still expect to see the usual drags from gestation, depreciation and potential consolidation. We prefer to see a steadier state of growth across all segments, and until then, we keep our SELL rating on the stock with fair value estimate of S$0.96.

Source: OCBC Research - 22 Mar 2016