Monday, July 4, 2011


Cityspring has recently announced a renounceable 11 for 20 rights issues at a discounted price of 39cts. This is the second rights issue within 2 years upon IPO. As I am vested into Cityspring mainly after the first rights issue, I like to sketch up the overall financial health of Cityspring while contemplating whether I should take up the proposed rights.

Cityspring IPO in Feb 2007 at a price of 89cents with a total of 450 million shares. Temasek inital stake is about 28.5%. A sum of $286M was raised at IPO. At that stage Cityspring will have a $128M term loan at SingSpring level and a $370M term loan at Cityspring level.

In July 2007, it acquired Basslink  for a sum of $A1,175M (SG$1500M approx). It was financed 75% with debt raising three bonds, a A$486 floating rate bond due 2015 and two A$190 fixed rate capital indexed bonds due 2017 and 2019 respectively. The equity portion amount to $375M.

In Nov 2009, it issued a 1 for 1 rights price at 48cts. The proceeds went mainly to partially repay the Cityspring loan down to $142M. Net proceeds from rights is $227.5M with a total number of 489,965,504 rights issued. TERP was at 63cents

With the current rights call this July 2011, it is raising gross proceeds of $210M of which A$145M (SG$190 approx) will be utilised to reduce the A$ denominated bonds over time. The total number of shares after the rights issue will be 1,520m shares. TERP will be at 48cents

Assuming the rights go through, the total amount of cash raised from shareholders upon IPO is about
$286M + $227.5M + $210M = $723.5M. The total number of shares will be

As at May 2011, net asset is at $357M. Net asset after ongoing rights will be at $567M. Total borrowing after paring down the A$ denominated debt is $1.2B. Total asset as at May 2011 is $2.15B. Currently, assets are split evenly between Singapore and Australia.

Asssuming I get the dps for the quarter ended June 2011, I will have gotten 8 * 1.05 = 84 cents in total counting after the first right issue with an average purchased price/shr  at 58.7 cents including commissions. My net cost will about 50cents off accumulated dps which is close to expected TERP of 48 cents.

I conclude that I will probably make a small overall gain on cityspring if I take up the rights but definitely NOT the 7% dividend I was expecting from it. From a positive note, Cityspring will significantly pare down its borrowing from a unsustainable position after the two rights issues.

The problem with CitySpring to date is that it overpaid for Basslink even though non-recourse financing arrangements are in place to protect the trust in case of Basslink failing. The group of investors who suffer the most are those that went in at 89 cents at IPO and higher. For those who went in after the first right issues, they probably break even, eke out a small gain or sustain a small loss. I am actually optimistic for those who are coming in now or planning to come in just after the second rights issue as the initial investors have largely borned the overpayment at Basslink.

I know a lot of investors are disappointed with CitySpring especially the ones that went in at IPO. I am also disappointed that I did not get my expected 7% dps to date. That is life. But I think I going to be emotionally detached and not divest hastily at the current price at 50.5 cents but to go for for the rights instead as I see significant improvement in its borrowing situation compare to what is immediately after the Basslink purchase. It is good news that the former CEO has left (maybe ask to leave if I may speculate) since he is largely responsible for Cityspring initially excesssive leverage model.

Also the trust management hefty initial performance bonus is given in terms of shares which may have been diluted by now to something more reasonable.

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