On July 8 the FESCO shipping group disclosed the parameters of an additional common share issue. The group intends to float 590.25 million common shares, at 20% of its uplifted capital. The shares are to be distributed by open subscription, while the offer price is to be the same for both existing and new shareholders, at USD 1.08 (RUB 25.45) per share. The company's existing shareholders (the current shareholders register was compiled on May 15) may exercise their pre-emptive right to buy out the shares within five working days from the starting date of placement on July 9. The company will direct the proceeds towards development, including financing its acquisition of the Vladivostok Container Terminal.
The offer price is set at 5% below the average weighted market price of the shares in the past six months, and at 7% below the company's current stock valuations. In our daily report of May 16, we predicted that the placement price may appear to be lower than the current quotations for the shares, given the controlling shareholder's intention to buy out the bulk of the issue. The predicted scenario has proved to be fully justified.
Despite the relatively low placement price, we are upbeat on the company's ambitious strategy to build a multi-modal transportation company. The interaction of different assets within the framework of a single company should help achieve a full-blown synergetic effect within two to four years. We do not see the company's debt burden as problematic, given its rising cash flows and the fat profit margins of its terminal business. Our target price and recommendation on the company's shares are now under review.
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