Aspial Corporation Limited Bond Exchange Offer – Phillip on the Ground
We attended a company update on Aspial Corporation. Here are the highlights:
Exchange offer. Major noteholders of Aspial have expressed their interest to extend their bond investments. As such, issuer Aspial Treasury Pte. Ltd. and guarantor Aspial Corporation Limited have announced an exchange offer for the group’s existing notes maturing in 2021. The notes are: a 5.90% note due 19 April 2021, outstanding S$50mn; and a 6.25% note due 11 October 2021, outstanding S$115mn. In exchange, the new note will pay 6.15% per annum semi-annually. Issuance is expected on 22 January 2021 for a 3-year tenure. Maturity is 22 January 2024.
Early exchange fee. Noteholders who accept the offer before the early exchange deadline of 5pm on 14 January 2021 will be paid an early exchange fee of 0.3% of the principal amount of the new note. Noteholders who accept the offer after the early exchange deadline and before the offer expiry at 10am on 18 January 2021 will be paid a normal exchange fee of 0.15%. Accrued interest will also be paid to noteholders.
Noteholders who do not accept the exchange offer will continue to hold their existing notes until their respective maturities.
Healthy financial covenants. Aspial still has ample headroom over its financial covenants. As at 1H20, its tangible net worth was S$425mn vs the minimum S$225mn. Net debt to equity was 2.11x vs the maximum 4x. Secured debt to total assets was 37% vs the maximum 70%. The company’s covenant financials were stable in 1H20. Total tangible net worth of S$425mn was around its 4-year average of S$403mn. Net debt to equity of 2.11x was at its 4-year low; the 4-year average was 2.76x. Secured debt to total assets was at its 4-year average of 37%.
High bond ownership. More than 70% of existing Aspial bonds are held by the company directors, representing direct and substantial management alignment with noteholders. A change of shareholding event for Aspial bonds is deemed to occur when Mr Koh Wee Seng (CEO), Ms Ko Lee Meng (Director) and Ms Koh Lee Hwee (Director) cease to own in aggregate more than 50% of Aspial’s issued share capital. In such a case, noteholders can opt for early redemption of their bonds.
Resilient financial services. Aspial’s pawnbroking business was resilient during COVID-19, underscoring its recession-proof nature. Pawnbroking and jewellery trading revenue was higher in 1H20 (figures not disclosed). However, Aspial’s retail jewellery and bullion businesses were softer due to store closures, but were aided by grants and rebates to cover staff and rental costs. Overall, financial services pretax profit was 76.9% higher YoY, to S$12.1mn in 1H20.
Australia 108 completed. Aspial completed its residential skyscraper and Australia’s second-tallest building in Melbourne in October 2020. Settlement activity is moving smoothly and revenue recognition is on course. Australia’s property market has also picked up, with higher volumes sold and higher property prices since mid-2020 to end the year positive. This can help with the sale of unsold units. The timeline for settlement for most property purchases is 3-6 months.
Given the high level of internal support for Aspial’s bonds, we think the bond exchange offer will progress smoothly. The exchange will help conserve Aspial’s cash and financial flexibility. Without the exchange, cash of S$65mn and estimated FY19 EBITDA of S$93mn add up to S$158mn may be insufficient for paying off the S$165mn combined notes maturing in 2021.
We think the exchange offer is worth looking at for continued exposure to Aspial. Management’s high direct interest in Aspial’s bonds has reduced Aspial’s free float and liquidity, making it difficult to purchase its existing bonds in the open market.