Ausgroup recently announced that it will invite holders of its S$110m notes (due 2018) to exchange the notes for new ordinary shares of Ausgroup. It is also proposing to undertake a capitalisation of the shareholder loan from Ezion Holdings via the issuance of new shares.

The issue price is S$0.058, a premium of 6.6% above the VWAP on 18 May 2017. The maximum amount of the shareholder loan (includes both principal and interest) to be capitalised is S$42.5m (US$30.5m), and this would bring Ezion’s stake from 17.8% to a maximum of 29.9% in Ausgroup.

Recall that Ausgroup acquired Port Melville and related assets in 2014 and notes were issued to fund this as well as construct additional facilities such as fuel storage tanks for the port. Maintain HOLD with S$0.32 fair value estimate on Ezion.

Source: OCBC Research - 23 May 2017