Comments On IOI's Rights Issue

On Star Business. in the article, Report: New IOI debt sign of ‘more subdued outlook’, several research houses gave their opinions.

I was not impressed with the last few passages.

• ........... A local brokerage said while the rights issue might not be ideal, it was probably the easiest and fastest way to raise the required funds in the current tight capital market.
  
  IOI was likely to use the proceeds to refinance some of its convertible bond issues, of which one is due in 2011 and another in 2013, it said.
  
  A bank-backed research house, meanwhile, believed IOI was building its war chest for major acquisitions given that it was in a healthy financial position.
  
  IOI’s free cashflow for FY10 is estimated at about RM1.5bil versus capex needs of RM500mil. As at May 8, unutilised proceeds from the third exchangeable bonds totalled RM732mil.
  
  Regional plantation companies also seemed to be on a fund-raising spree, the research house said, noting that Wilmar International Ltd was listing its China operations in Hong Kong while Indofood Agri-Resources was mulling a 1 trillion rupiah bond issue.

Not too impressed with this un-named bank-backed research house.

Which research house is this?

Why give such comments and chose to be an unknown?

How accurate is the healthy financial position mentioned by this unknown bank-backed research house?

Me?

I would question the healthy financial position.

Let me prove what I am saying.

Earlier this year, I wrote the following posting. IOI Earnings Results And Flashback On What Has IOI Done The Past One Year

Let me re-cycle some stuff.

Here's the objectivity of this simple exercise. Since 2008, the CPO had the mother of all bull runs. All planters made insane profit. Money were like falling from the sky. Yes?

So a comparison from a quarterly reports then and compare to present day, and see how healthy is IOI's financial position.

Would this not be logical?

Anyway, from that posting... , I want to use the quarterly earnings reported on Feb 2008.

:: ..... I start with looking at what was on IOI's books back exactly a year ago, Feb 2008, Quarterly rpt on consolidated results for the financial period ended 31/12/2007

Short term funds+cash and bank balances = 427.109 + 531.574 = 958.683 million.

*** Errata !!! ***.

Missed out the short term funds. Looks like my eyes are short! :p2

Total cash should be 958.683 + 692.897 = 1651.560 million.

Short term + long term borrowings = 205.697 + 3363.589 = 3569.186 million (3.569 Billion!) ( you can verify this on this screenshot here )

Net debt position = 3569.186 - 1651.560 = 1917.626 million

IOI's last reported quarterly earnings was on 15th May 2009. Quarterly rpt on consolidated results for the financial period ended 31/3/2009

Short term funds+cash and bank balances = 268.556 + 341.407 = 609.963 million.

*** Erata !!! ***

Total cash should be 609.963 + 1905.639 = 2515.602 million

Short term + long term borrowings = 37.771 + 5682.610 = 5721.381 million (5.721 Billion!)

Net debt = 5721.381 - 2515.602 = 3205.779 million

How?

*** Errata ***

Cash balances of 958.683 million had diminished to 609.963 million!
Loans ballooned from 3.569 Billion to 5.721 Billion!!

IOI as at 31/12/2007 was in a net debt of 1917.626 million. IOI latest earnings as at 31/3/2009 saw IOI having net debt of 3205.779 million.

I do not know but would this be the definition of a healthy financial position when cash had diminished and loans ballooned? when during a period when IOI saw CPO crude prices hit record highs, their net cash position actually deteriorated?

Now consider this also.

Anyone want to count the 'money' made by IOI during this period?

1. Quarterly rpt on consolidated results for the financial period ended 31/12/2007
Net earnings: _______________

2. Quarterly rpt on consolidated results for the financial period ended 31/3/2008
Net earnings: _______________

3. Quarterly rpt on consolidated results for the financial period ended 30/6/2008
Net earnings: _______________

4. Quarterly rpt on consolidated results for the financial period ended 30/9/2008
Net earnings: _______________

5. Quarterly rpt on consolidated results for the financial period ended 31/12/2008
Net earnings: _______________

6. Quarterly rpt on consolidated results for the financial period ended 31/3/2009
Net earnings: _______________

So where all the money go when IOI was making big money?

Dividends? Maybe IOI paid out a lot of dividends?

Second interim dividend
Interim Dividend
Interim Dividend
Interim Dividend

And then there was the privatisation of their listed subsidiary, IOI Properties. ( see Big Ouch For IOI Properties! )

How?

If you are an IOI Corp shareholder, how would you evaluate your investment?

Don't you find it incredible that after the biggest ever bull run in the CPO prices that IOI Corp want to raise some 1.22 billion in a rights issue?

How my dearest?

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Many thanks to 棕油网 for pointing out that I had made some error. :D