Golden Agri's plan to issue S$400M convertible bonds puzzles analysts

Is it gearing up for M&As?

Here's more from CIMB:

Golden Agri has proposed to issue US$400m in convertible bonds due 2017 to fund general corporate expenses. The bonds will be launched with a coupon of 2.5% a year, and an initial conversion price of S$0.8896.

"This is a surprise to us and the market given the group's healthy net gearing position of 13% as at end-June 2012. However, the group is not the first planter to tap the bond market this year. There have been a slew of bond issuances in recent months by planters like IOI Corp and First Resources.

This is the second time this year that the group is tapping the bond market. In June 2012, its 97%-owned PT SMART issued Rp1tr (US$104m) worth of bonds with tenures of 5 and 7-years to fund the expansion of downstream facilities and for working capital needs, CIMB analyst Ivy Ng Lee Fang.

"We suspect the group may be raising financing ahead of potential M&A opportunities. We are nearterm negative on this development as it could dilute our fully-diluted EPS by 4%, but if the group can activate earnings-enhancing M&As, we will turn positive on this exercise," he added.