Jaya

Jaya: Re our earlier warning this morning (10.25 am post), DBSV downgrades to Hold with TP reduced to $0.66 from $1.15, pegged at 1x P/B. House cites uncertainty over shareholding, pending clarity on future control of group, to cap near term share price performance.

This follows the seizure of 422m pledged shares by lenders after controlling s/holder Nautical Offshore Svcs (NOS) defaulted on a syndicated debt facility & resulted in HSBC Insti Trust Svcs, as security trustee, becoming a substantial shareholder of Jaya with a 54.7% stake.

While it would be business as usual for Jaya, there emerges 2 possible scenarios for Jaya going forward -
1) the consortium of banks liquidates its position in the open market to get back its capital. But the potential of a share overhang may cause a collapse in share price & a loss of value for the banks. Given the lack of liquidity in the stock, this scenario is unlikely to pan out as is not in the banks’ interest to do so.
2) The other less bearish scenario assumes that the syndicate of banks will look for & unload its entire stake to a strategic investor albeit at a discount to market price. This is a more likely scenario as it is likely to result in a more stable transition of control & less sharp negative reaction.