GAMING counter Berjaya Sports Toto Bhd's (B-Toto) irredeemable convertible unsecured loan stocks (ICULS), which expire on Aug 4, 2012, have attracted interest as the loan stocks have been actively traded recently.
Berjaya Land Bhd, which holds a 51 per cent stake in the company, was actively buying back the loan stocks up until the end of last year, hence limiting any downside risk to the ICULS.
As part of Berjaya group's restructuring exercise, the Securities Commission had stipulated that Berjaya Land, which owes some RM1.15 billion to B-Toto, would have to redeem at least RM192.3 million out of its RM384.7 million in ICULS, pledged as collateral to lenders.
The ICULS are part of B-Toto's plan to recover the inter company loans it gave to Berjaya Land. A couple of analysts contacted by BizWeek, however, did not view the ICULS favourably, opting for the mother share instead. “The only reason to buy the ICULS would be for certain yields. However, there is not much arbitrage opportunity considering the difference is only eight sen,” one of the analysts says.
The ICULS rights give the holder the option to buy a unit of ICULS, which is a loan stock for RM1 per ICULS. The loan stock is not redeemable, thus the holder will not get his money back when it expires, but it is convertible to the mother share at RM1.20.
“The coupon rate of eight per cent per annum only yields 2.6 per cent in dividends, while that of the mother share will yield 8.5 per cent or about 28 sen at a price of RM3.28,” adds an analyst.
B-Toto received much negative publicity two years ago after news of the inter company loans came out. The company's share price fell drastically after the announcement in June 2000.
As a means to settle the issue of the hefty inter-company loans, B-Toto proposed a special cash dividend of 170 per cent and the ICULS issue. Investors were given the option to take the special dividend or use the cash to subscribe to the ICULS.
Berjaya Land took up 51 per cent of the ICULS issue, and has settled about 10 per cent of the inter-company loans to date. Berjaya Land has to date redeemed some 91 per cent of the required amount of RM192.3 million before April this year.
The date of acquiring the rest of the ICULS was pushed forward to April 2003 from October 2002. To date some RM625 million worth of ICULS has yet to be redeemed from the RM751.35 million originally issued.
The interest of eight per cent per annum over the tenure of the loan stock is likely to affect the company's margins, the impact of which is likely to be seen from the current financial year ending April 30 2003 onwards.
Thus far, some 20 per cent of the company's ICULS has been converted since it was issued in August last year, enlarging the company's share capital by 25 per cent since the start of the financial year.
The impact of the ICULS on B-Toto's balance sheet has been immediate with a sharp decline in net tangible asset per share, from RM1.88 to 80 sen at the end of October last year, the company's second financial quarter, in contrast to Apr 30 the company's first quarter.
Dividends are expected to be lower than last year's 54.2 sen per share, but the company anticipates to pay at least the equivalent quantum of net dividend of RM201 million or in the region of 40 sen per share.
Multex Global Estimates forecasts B-Toto's earnings per share for the financial year ending Apr 30, 2003 to decline 4.06 per cent to 52 sen per share.
For the year to date period ended Oct 31 2002, the company made a net profit of RM137.03 million on the back of a RM1.05 billion turnover, declining from a net profit of RM152.13 million and a turnover of RM1.17 billion for the corresponding period the previous year.
B-Toto hit its 52-week high of on RM7.72 on April 23 last year while the company's low of RM2.99 was on December 4, 2002. The stock closed at RM3.26 on Thursday.
The company's ICULS hit a 52-week high of RM3.42 on August 19 last year, and reached a low of 2.40 September 26 shortly after.
The loan stock closed at RM2.97 on Thursday.
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