Sunday, June 1, 2014

Yangzijiang HTM

A reader asked me to elaborate about YZJ HTM. I am quite sure Ren every HTM is different, but maybe I can shed some light on this Tianjin GuoHeng event.

Tianjin GuoHeng ex-controlling shareholder, lets call it A. Owned B money, and pledge its shares to B. A is supposed to transfer the shares to B, or any company B appoint. B appoint YZJ to take over the shares. The shares are like collateral for a loan. A is supposed to pay YZJ interest and will redeem the shares in 1 year, failing which, the shares will belong to YZJ. Since A pledge to buy back the shares in a year time, YZJ promised to, in the meantime, pass an attorney of management rights to A, subject to various terms and conditions so that the shares remain of value.

Once this agreement is in forced, and shares are transferred, B is out of the picture. Ren then add another layer to this agreement, the shares is bought over from B using Ren investment co, C. YZJ then provide the HTM service to C, in the form of loans with interest for C to buy the shares.

Why bother to add that additional level? I speculate, after chatting with city farmer from valuebuddies, (my own understanding, might not be what he thinks ) is YZJ is still Ren biggest baby, with the shipbuilding business being its lifeline of cash generation. So it is highly unlikely that C, which is also under Ren to default. If C did not receive interest from A, it will then proceed to recover its collaterals and in the meantime, the YZJ HtM can roll over it, without declaring a default. Also, given now that A has sue Ren, the buck can stop at Ren and C, without affecting the shipbuilding business.


I wonder if all these make sense. If there are readers who are able to point out mistakes or misconception, please do so, and share your knowledge so that everyone learn.

9 comments:

  1. Thank you for the best analysis on YZJ's (Chairman Ren's) recent issue with Tianjin Guoheng Railways that I could find on google search. Your insights are well thought out and meticulous.

    Having personally researched into Ren Yuanlin's background, it seems very unlikely a person of his character and integrity would involved in any illegal stock manipulation activities.

    I went long on YZJ and patiently waiting for this issue to be cleared up and a rebound back to 1.10 to 1.13 (pre-gap down levels).

    Enjoying your blog! Keep it up. I am subscribing :)

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  2. Hi thank you Steven,

    Your words of encouragement are what that spurs me to continue to write.

    I believe the resolve of this issue will Indeed allow the counter to gap up assuming all things equal, e.g. Market sentiments remain the same.

    I like YZJ too, but have divested. I was hoping for a lower price to get back in but since I couldn't have that, I have move on to something else.

    I am quite sure YZJ/ Ren knows what he is doing, the debt is taken over from a SOE, and the recovery of it ( In terms of value) well taught out, if the value of shares get worse, Ren take over management and run the whole company, company is worth more than the debts involved, hence the dirty linen out in the open, to contest Ren control

    But if most of HTM investments are like this, it is also quite scary, as compared to plain Coporate bonds.

    I would like a higher MOS, since I am already out and found another replacement, e.g. Venture. Another recovery plan with good yield as u wait. Hope that turns out as rewarding as YZJ

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  3. does HTM means hold to maturity? what does MOS stand for?

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  4. Yup HTM: held to maturity.

    MOS = margin of safety

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  5. got it, thanks! also i caught up reading the posts on valuebuddies. i have to say, it a much more insightful and intellectual forum than the likes of sharejunction that are full of stock tippers and stock fortune tellers :)

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  6. U are welcome. Lets help one another in our blind spots.

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  8. Hi,
    What is your thoughts about yzj? Especially with their recent foray in LNG vessels.
    Also, seems no further updates on the accusation.

    Cheers

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    Replies
    1. Hi Caprion,

      In terms of business, I think Ren Handle the shipbuilding business in a excellent way!

      Why did I say so? When BDI is doldrums, it wins Eco bulk carrier business.

      It even gave up a rig contract because of no payment of deposit. In hindsight, had YZJ go ahead hoping for the best, we know how it would go now with the o and G collapse.

      They mentioned about LNg carrier and they finally deliver. So great.

      Dividend at current price is around 4%, also very decent.

      But given I sold when the accusation started about its HTM, I have hopping to catch is near a dollar. At 1.20 plus now, I do not think I will add anything.

      Hope this helps

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