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SBT to sell $60m worth of convertible preferred shares to foreign investors

Update: December, 13/2018 - 15:29

HCM CITY — The board of directors of Thành Thành Công - Biên Hòa Joint Stock Company (code: SBT) on December 12 announced plans for a private placement of convertible preferred shares to foreign strategic investors.

The company will issue almost 44.47 million shares, equivalent to nearly 8 per cent of its total shares. The selling range will be between VNĐ30,000 (US$1.29) and VNĐ45,000 ($1.94), enabling SBT to mobilise at least $60 million from this issuance.

The shareholders will get a preferred dividend of up to 6.5 years, with a fixed dividend of 5.5 per cent for the first 1.5 years and at mutually agreed rates after that.

The preferred shares will not carry voting rights but can be converted into common stock at the request of investors at any time after the issuance date.

The conversion price will be negotiated by the company and the investors at the time of conversion but will not exceed VNĐ38,000.

With the current potential of the company, strategic investors are estimating the fair value of SBT at almost 90 per cent higher than its closing price on December 12. This not only confirms SBT's intrinsic value but also indicates the expectations of strategic investors in the future of the company and the sugar industry in general.

The shares will be subject to a restriction on transfer for at least one year from the issue date.

The company is in the process of registering the issuance with the State Securities Commission and will complete it within 90 days from the date of approval.

Financial restructuring towards an optimal capital structure can be done using many different methods, including changing the maturity and tenor of debt, mobilising new debt through bank loans, bond issuance and convertible bonds, capitalising a part or all of the loans, and so on. However, these methods will not solve the root of the problem because restructuring debt without associated changes in the enterprise will be merely formalistic.

Therefore, the SBT board has decided to issue preferred stock to strategic partners. The board is aiming to identify and co-operate with strategic investors who will accompany the company in the long run, be ready to support it in terms of strategic planning, management, capital, and mode of operation and trading and at help it take appropriate steps for development.

For the first time a Vietnamese sugar and sugarcane company is set to mobilize capital at the international scale. This will be significant for the development of SBT and Việt Nam’s sugar industry in general.

The proceeds from the private placement will be used to retire part of the loans the company obtained to buy sugarcane fields and a sugar mill in Laos’ Attapeu Province and mechanise sugarcane cultivation and expand organic sugar production in Laos.

Being a leading sugar company in Việt Nam, and with the ambition of taking the SBT sugar brand abroad to become a regional-level company with the ability to integrate when the ASEAN Trade in Goods Agreement (ATIGA) comes into effect in 2020, SBT has recognised the potential of the sugarcane growing area in Attapeu and decided to buy it from Hoàng Anh Gia Lai Cane Sugar Limited Company in an M&A deal in 2017.

TTC Sugar’s plant in Tây Ninh Province.

The sugarcane here has a high sugar content and the fields are located near the sugar factory, reducing transportation costs. Significantly, this land is not contaminated by chemicals, making it suitable for high-value growing organic sugarcane for making organic sugar to serve high-income customers.

It offers better profit margins than other sugar product lines, which is in line with the company's strategy to focus on developing ​​organic sugarcane farms in 2018-21.

TTC Attapeu plant has a capacity of processing 7,500 tonnes of sugarcane and producing 700 tonnes of sugar a day, and came with 7,000ha of sugarcane fields. The plant is just behind TTCS mill, which has a capacity of processing 9,800 tonnes of sugarcane and producing 1,000 tonnes of sugar a day.

According to the board, with its range of advantages, the Attapeu plant is an important link in the company’s value chain.

Attapeu Sugar Cane will support SBT in diversifying its product portfolio and reducing costs thanks to advantages in terms of sugarcane growing area, sugarcane yields, sugar output, and storage and distribution facilities. This will enable SBT to gradually compete with Thai sugar companies in reaching the regional market.

The organic sugarcane farm in Attapeu Province, Laos.

On December 5 the first batch of organic sugar produced at the TTC Attapeu plant was packaged to be shipped to Europe. SBT has signed a deal with the UK’s ED&F Man Sugar.

The British company has signed memorandums of understanding for buying organic sugar produced by TTC Attapeu and other sugar products from TTC from the 2018-19 sugarcane crop for selling to the European market.

While the sugarcane fields continue to receive incentives like tax and land use fee breaks from the Lao Government, Laos is one of countries enjoying preferential export duties when exporting to the EU under the latter’s new Generalized Scheme of Preferences for least developed countries.

The EU is a large market for sugar products, where not only the food industry but also the non-food sector uses them.

Obviously, with SBT having a strategy to expand and an ambition to export sugar to the EU to diversify its markets and avoid depending on existing markets like Việt Nam and 14 markets in the Americas, Asia, Africa, and the Pacific Islands, the acquisition of HAGL Sugar in Laos is of great importance.

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