Shares & Derivatives
Mercator Lines IPO.
By Kleer  •  December 9, 2007
By: Kleer Closing date of application: 10 December 2007 Commencement of trading: 14 December 2007 Established in the 1983, Mercator Lines is a leading Indian-owned international dry bulk shipping company, focusing on the transport of coal into India, and iron ore from India to countries such as PRC, Japan, and South Korea. Their customers are large players in the thermal-based power and steel sectors, and include Tata Power and Global (a subsidiary of Arcelor Mittal Group). Their parent company, MLL India, is the 2nd largest private sector shipping company in India by aggregate fleet tonnage capacity. Key Competitive Strengths:
  1. They have a modern fleet of 11 vessels, with an average age of 2 years for owned vessels, and less than 9 years for chartered-in vessels, as compared to an average age of 15 years for global bulk carrier fleet.
  2. Because of their affiliation with MLL India, they are able to provide their customers with total logistics solutions, from load port to the point of usage.
  3. It enjoys stable revenue because of long term fixed rate contracts ranging between 11 months to 4 years with their customers.
Key Growth Plans:
  1. To strategically expand their fleet by acquiring 4 gearless vessels.
  2. To maintain the majority of their fleet on fixed rate contracts, and to deploy up to 30% of their fleet on the spot market to capitalise on higher pricing.
  3. To exploit backhaul opportunities to optimise vessel utilisation and profitability.
Key Risk Factors:
  1. Their strategy to expand their fleet may result in substantial debt. They currently have US$394m of outstanding debt comprising Convertible Bonds, a loan from MLL India and bank loans, resulting in a finance cost for the five months ended August 31, 2007 amounted to US$10.2 million.
  2. If the holders of their US$16m Series B Bonds do not exercise their conversion rights prior to the maturity date, they may be required to repay the principal amount of our Series B Bonds in full.
  3. The company was only established in May 2005, thus it has a limited operating history with only 8 employees currently.
Financial figures Intended IPO price: $0.94 No. of shares available for public offer: approx. 10.85m No. of shares available for placement offer: approx. 259.35m Total post invitation share capital: Approx. 1,316.6m Note: Unaudited FY2007 figures for the 1st 5 months were available in the prospectus. FY2006 Revenue: $74.4m Profit: $6.2m NAV: N.A. EPS: 0.0047 EPS % Incr: N.A. PE ratio: 200x Price: 0.94 5mFY2007 Revenue: $160m Profit: $38.9m NAV: 0.0763 (incl. IPO proceeds) EPS: 0.0295 EPS Incr: 528% (Est.) PE Ratio: 31.9x Price 0.94 Dividend policy: No fixed policy. Conclusion: Mercator Lines is the first Indian shipping company to list on SGX, so there is no real precedent for it to be compared with. Most SGX-listed shipping stocks trade between 12-15x PE. Pros: Despite its short operating history, its strong growth figures is evident of a good growth stock, plus it has a strong parent company and very reputable cusomers. Cons: It is a very new and small company. Most of the other Indian companies previously listed on SGX, such as NeraTel, Meghmani SDS, QAF, have largely been ignored by investors. Considering all the above factors, it seems as if there is a lot of uncertainty surrounding this IPO. As such, I would decline to give it a Fair Value as of yet. I would prefer to avoid this IPO for the time being, but will be monitoring its future price performance and results. Probability of getting allotted for the IPO - GOOD I have only included the key points of the prospectus. Certain information have been omitted in order to keep my write-up short, but you can find the entire prospectus here. Source: Extraordinary Profits
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By Kleer
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