China Merchants Holdings Pacific

China Merchants Holdings Pacific: (S$1.09) Acquiring three expressways in Guangxi for Rmb3b
China Merchants Holdings Pacific (CMH) proposed to acquire three expressways in Guangxi Zhuang Autonomous Region, China, for Rmb3.04b.

The three target assets comprise:
1) 53.4km Guilin–Xing’an Expressway with remaining provisional concession of 27 years
2) 67km Guilin–Yangshuo Expressway with remaining provision concession of 22 years
3) 39.5km Yangshuo–Pingle Expressway with remaining concession of 22 years

Upon completion, the acquisitions will significantly expand the scale of its toll road operations, raise the number of toll roads operated to eight across four provinces, an boost the total length of its highway by 39% to 575km.

Average remaining concession period across its portfolio will increase by 24% from 13.6 years to 16.9 years.

Details on financing for the acquisition have not been finalized, and will involve the use of bank borrowings and/or the issue of new securities.

The group has offered a scenario analysis for pro forma FY14 figures based on two methods of funding, assuming full conversion of convertible bonds:

Plan A: 1-for-5 rights issue at $1.01 and HK$3.74b financing at 3% interest
- NAV/share will increase 3.4% to HK$5.85
- EPS improves 3.5% to HK$0.833
- Gearing to soar from 35.8% to 107.2%

Plan B: 1-for-2 rights issue at $1.01 and HK$1.65b financing at 3% interest
- NAV/share will increase 3.5% to HK$5.86
- EPS to fall 11.6% to HK$0.833
- Gearing to rise from 35.8% to 75%

The stock continues to sit on Market Insight's Yield portfolio. Compared to other HK-listed tollroad operators, CMH offers a superior dividend yield with a payout of no less than 50%.