Friday, September 03, 2010

Hovid Wants To Save $400,000 By Losing 3.7 Million.

Caught this news clip the other day: Hovid sells Carotech shares to reduce loan


  • HOVID Bhd said it has sold 80 million Carotech Bhd shares, or an 8.77 per cent stake, for RM5.6 million, to help reduce its loan owing to Affin Investment Bank Bhd.

    Last year, Hovid accepted a term-loan facility of RM20 million from Affin Investment to subscribe for new shares under a rights issue.

    The loan was secured by its entire 58.19 per cent stake in Carotech.

    The sale is expected to result in a loss of some RM3.7 million.

Hovid was actually queried by Bursa. (oO)

The following was the interesting reply made by Hovid.

With reference to Bursa Malaysia Securities Berhad ("Bursa Securities")'s query letter dated 1 September 2010 in relation to the Company’s announcement dated 27 August 2010 on the Disposal, the Company wishes to provide the following additional information:-

Query 1
Whether the disposal of shares is done on the open market of Bursa Securities. If not, to state the identity of the purchaser

Response
The shares were disposed in the open market of Bursa Securities.

Query 2
Average market price of Carotech’s shares disposed off

Response
The shares were disposed at an average market price of RM0.07 per share.

Query 3
Net interest saving per annum to your Group arising from repayment of the term loan


Response
The expected net interest saving per annum is RM400,000.

Query 4
Rational of Disposal, other than to reduce the loan owing to Affin Investment Bank Berhad as stated in your announcement, given that the Disposal will result in a loss of RM3.7
million

Response
There is no other reason other than to reduce the loan owing to Affin Investment Bank Berhad to mitigate the risk of Margin Call.

Query 5
Average original cost of investment by your Company in Carotech’s shares and date of such investment


Response
The shares were acquired over a period of time; the first was in November 2004 before Carotech’s IPO and the latest in December 2009 when Carotech issued the Rights Issue.

The average cost of investment is RM0.11 per share.

Query 6
To quantify the reduction in gearing of your Company

Response
The Company’s gearing ratio will be reduced from 0.55 to 0.51.

Query 7
The highest percentage ratio applicable to the Disposal pursuant to paragraph 10.02(g) of the Listing Requirements


Response
The highest percentage ratio applicable is 6.5% relating to Total Assets.

----------------------------------------------------

Ok, so it was expected that Hovid will lose money selling their Carotech shares and this sale resulted in a loss of 3.7 million for Hovid.

So the reason given by Hovid was 'to help reduce its loan owing to Affin Investment Bank Bhd. '

And now I have to give Bursa and its staff credit for Query No.3. ( Bravo! *clap hand*)

  • Net interest saving per annum to your Group arising from repayment of the term loan

Hovid answer was:

  • The expected net interest saving per annum is RM400,000

So what does this say to you?

What does this say to me?

Well... I might be wrong but Hovid is telling me that it wants to 'save' rm400,000 per year by losing 3.7 million.

How?

Smart move?

( Do see Oh Carotech: Using Debts To Grow A Business Is Not Sure Win!)

5 comments:

AhYap.com said...

how about avoid margin call? or to cut lose, i.e. to not lose more than 3.7m - 400k?

ronnie said...

How about transforming Carotech from a subsidiary to an associate ?

tklaw said...

Hovid is obviously not an expert in capital mangement. They should learn from QL on the way to structure the loan so as to avoid margin call. :p

Moolah said...

LOL!

Very jahat comment! :P

tklaw said...

It was really amusing when I first read the title ' Oh, that stock called QL '
LOL