Raising Rmb4bn via A-share convertible bond issuance to fund expansion plan
- Expect 4% dilution upon full conversion of CBs, manageable in our view
- CB issuance is consistent with expansion plan, proceeds mostly applied to develop two new solar glass production lines
- We maintain BUY on H-shares (TP 45) and HOLD on A-shares (Rmb 53).
Flat Glass Group (FGG) announced it plans to raise Rmb4bn via a convertible bond (CB) issuance. The conversion price is Rmb43.94/share per A-share. This implies up to c.91m new A-shares could be issued upon full conversion of the CB’s, equivalent to c.4% of total enlarged share capital. We reckon the dilution is manageable. The new CB has a term of 6 years and issued at par. The 1/2/3/4/5/6th year coupon rate is 0.3%/0.5%/1.0%/1.5%/1.8%/2.0%. China Chengxin International Credit Rating Co. Ltd. (CCXI) gave the CB an AA rating.
FGG plans to apply most of the Rmb4bn proceeds towards expanding production capacity. Specifically, the company plans to spend c.Rmb1.95bn to add two 1,200 ton/day solar glass production lines. Around Rmb658m is allocated towards developing a distributed solar project. Another Rmb197m is allocated towards refurbishing a solar glass plant with 15m sm capacity. The remaining Rmb1.2bn is expected to be applied towards working capital replenishment. In our view, the CB issuance is consistent with FGG’s expansion plan. The company plans to achieve >20,000 tons/day solar glass production capacity by 2023, up 37% from 14,600 tons/day in Mar-22.
Given the conversion price is near the previous A-share close price, we reckon the CB’s are likely to be converted. This should help improve FGG’s financial position. Upon full conversion of the CB’s, FGG’s FY22 net gearing (net debt to total equity) is expected to improve to c.20% is, compared to c. 55% before the CB issuance.
We maintain BUY on H-shares (TP HK$ 45) and HOLD on A-shares (TP Rmb 53).