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Wednesday, November 13, 2013

XiDeLang exercise offers steep discount (Star)

Petaling Jaya: XiDeLang Holdings Ltd’s (XDL) major shareholder and chief executive officer Mark Ding confirmed that his company was in talks with top-tier fashion brands to win original equipment manufacturer contracts from them, but added that it needed to upgrade its facilities before such contracts were sealed.

“We need to upgrade our facilities to meet the basic specification of these high-end brands before we can seal the deal with them. We are fighting hard for these contracts,” said Ding.

The Mandarin-speaking Ding, who spoke through an interpreter, also said that this was part of the reason the company was embarking on a rights issue. He declined to confirm if one of those foreign clients was United States-based Wal-Mart Stores Inc, which had been speculated in media reports.

XDL is one of the nine China-based companies listed on Bursa Malaysia. It stands out currently as the only one to be trading above its initial public offering price, taking into consideration a one-for-one bonus issue in the past.

The company is China’s second largest maker of running and skateboard shoes and also owns a sports apparel business that has been growing at a rate of 60% over the last three years.

Ding said that another major use of the funds to be raised from his company’s proposed rights issue was to create the XDL’s own online selling portal.

“This is very important to us. We foresee that online sales would account for at least 30% of orders within the next three years,” he said, adding that XDL already sold its products via online distributors in China such as JD.Com and Alibaba.

Ding, through his advisers, had contacted StarBiz to explain the finer details of the company’s recent corporate proposal, which he said might not be fully understood by investors.

To recap, on Sept 30, XDL proposed a rights scheme on this basis: for every 12 XDL shares held, shareholders would be entitled to subscribe to four rights shares at an exercise price of 35 sen. Subscribers to the rights will receive three free warrants and another three bonus shares.

He said the corporate exercise offered shareholders an attractive discount if they wanted to participate in the future growth of XDL.

Dissecting the exercise, he said an existing shareholder of XDL holding 12 shares would have to fork out a total of RM1.40 for the four rights shares. The same shareholder would be entitled to three free warrants, which at its current price of 14 sen per warrant, carries a value of 42 sen, theoretically bringing down the said shareholder’s cost to 98 sen.

And if the three bonus shares are added to the calculation, then the effective acquisition price of the seven new shares of XDL would work out to a paltry 14 sen each, indicating a 60% discount based on yesterday’s closing price of 34.5 sen, Ding pointed out.

However, this is assuming both the prices of the mother share and the warrants hold up at their current values. On the reverse, the discount could be even steeper if the mother share appreciates post the exercise.

However, the proposed rights issue has drawn criticism from some quarters who question why XDL needed to raise funds, considering that it was already in a net cash position of 291 million yuan (RM153mil) as at June 30.

Ding said having that cash position in the company was necessary, as it amounted to a few months of revenue. “We always take the prudent approach of having ready cash to undertake our operations. Our yearly turnover is close to one billion yuan, so our monthly turnover can hit up to 80 million yuan.

“We have taken the prudent approach of having cash of at least three times our monthly turnover,” he said, adding that XDL also planned to have minimal borrowings.

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