Frankie Dominion to buy coal firms for HK$2.4b
Shares of loss-making home products maker Frankie Dominion International jumped 13.13 per cent to 56 HK cents each yesterday after the company announced a plan to buy two coal-trading firms for a total of HK$2.4 billion.
One acquisition target is in coal trading. The other will hold a 90 per cent stake in a subsidiary engaged in coal-related ancillary businesses on the mainland after restructuring, Frankie Dominion said in a filing with the Hong Kong stock exchange.
The firm plans to issue HK$2.2 billion worth of convertible bonds to fund the acquisition of Pride Eagle Investments and Joy Wisdom International. Within five years, the bonds can be converted into Frankie Dominion shares at 40 HK cents each, a 19.2 per cent discount to the stock's last closing price of 49.5 HK cents.
It will also issue HK$200 million worth of promissory notes or pay in cash at its discretion.
'The acquisition represents an opportunity for the group to diversify into the prosperous coal business and broaden its revenue base,' though it would not change its principal business, the company said.
Frankie Dominion blamed stagnant sales of consumer home products, high production costs and fierce competition for its unaudited loss of HK$19.2 million for the six months to June last year.
'It's not strange to see many small listed companies taking advantage of surging prices of energy by [moving] into the lucrative sector,' said one analyst. 'But I am afraid the coal-trading business is not as profitable as coal production.'
In November last year, electronics manufacturer Tomorrow International Holdings announced it would shift into coal production for its core business after paying 420 million yuan for an 80 per cent stake in a coking coal mine in Shanxi province.
In February, New World CyberBase, a Hong Kong property firm that has since been renamed Mongolia Energy Corp, surged 155.56 per cent after unveiling a HK$1.2 billion acquisition of a coal mine in Mongolia.