Kingboard surges on unit's spin-off plan

PUBLISHED : Saturday, 16 January, 2010, 12:00am
UPDATED : Saturday, 16 January, 2010, 12:00am

Shares in Kingboard Chemical surged more than 10 per cent yesterday after the producer of printed circuit boards said it would spin off its coke and coke-related chemical unit on the Hong Kong stock exchange.

Kingboard closed 10.67 per cent higher at HK$37.35 yesterday on a report the company would distribute a special dividend of HK$2 per share after the spin-off. Credit Suisse yesterday upgraded the stock to 'outperform' and raised its price target to HK$38.25 from HK$29.20 on the potential capital gain from the spin-off.

Hebei CoalChem, which is wholly owned by the company, planned to raise as much as HK$1.6 billion by offering a 25 per cent stake, made up of new and existing shares held by Kingboard, according to an exchange filing on Thursday.

The ratio of new to old shares has not been disclosed.

The company will use 38 per cent of net proceeds, or up to HK$608 million, to expand coke production capacity by 960,000 tonnes and methanol by 100,000 tonnes.

Coke is used as a reducing agent for smelting iron ore, while methanol is widely used in industry as a solvent.

About 27 per cent of the net proceeds will be used to pay back shareholder loans to Kingboard. At the end of September last year, shareholder loans topped HK$861.2 million. In addition to the offering, Hebei CoalChem will arrange a HK$500 million bank loan to repay shareholder loans on or after the listing date.

Remaining funds will be used for existing projects and working capital.

Hebei CoalChem reported a net profit of HK$208 million in 2008, down 19 per cent from a year earlier, even though sales almost doubled to HK$3.1 billion for the year.

In the first nine months of last year, the company earned a HK$112.64 million net profit on sales of HK$2.54 billion. Hebei CoalChem did not provide a comparative figure for the period.

Net assets of the coke manufacturer had increased to HK$900.5 million by September last year, up from HK$787.1 million in December 2007.

Bank of America Merrill Lynch was appointed the sole sponsor of Hebei CoalChem's offering.

'The prospects for coking coal are promising this year due to the robust demand for steel on the mainland,' said Stephen Leung, the director of UOB Kay Hian.