Asian Pay Television Trust Rights Issue

Television

Asian Pay Television Trust (APPT) trustee-manager has put up a right issue to raise gross proceeds of S$46.2 million at 12.8 cents per share. You get 1 Asian Pay Television Trust Right for every 4 Asian Pay Television Trust that you hold.

If you are not familiar with this trust, let me give you a quick summary. Asian Pay Television Trust is an investment trust that engages in the provision of cable TV and broadband services in Taiwan, Hong Kong, Japan, and Singapore. The main asset is Taiwan Broadband Communications Group where revenue comes from providing cable TV and broadband services. Revenue comes in the form of monthly subscription, advertising sales, leasing of TV channels to third parties and installation of setup boxes.

One of my reader asked me if the Rights are worth considering to buy? Before I offer my opinion, let us understand why would a company issue Rights offering?

Companies issue rights to raise additional capital. The capital can then be used to meet its financial obligations such as

  1. Expansion of the company business via acquisition or new facilities
  2. Pay off debt

In Asian Pay Television Trust’s case, the capital raised is mainly used to pare down the trust’s offshore debt. You can find this in SGX company announcements.

The debt comprises of:

  • a multicurrency term loan facility in an aggregate amount of S$125.0 million and
  • a multicurrency revolving loan facility in an aggregate amount of S$125.0 million, which are repayable in tranches by 2021 and are
    secured by a first priority pledge of all of the assets of APTT Holdings 1 Limited, APTT Holdings 2 Limited, Cable TV S.A. and the Trustee-Manager.

The remaining will be kept for working capital purposes.

My Opinion

The issuance of rights will usually dilute the stock price as more shares are issued. The stock price will go up if the company uses the capital raised to expand its business, indirectly improving the earnings per share (EPS).

I did a quick glance at the historical dividend payout by Asian Pay Television Trust. The more than 100% pay-out ratio indicated that for the past years, they have been paying out more than they earn. In my opinion, this is not sustainable and thus the current rights issue.

Asian Pay Television Trust Rights Issue

In the sustainability report section of their 2019 annual report, it was indicated that they are cutting dividends to fund operational cash flows.

Asian Pay Television Trust Rights Issue

With all the above factors, I will not invest into Asian Pay Television Trust and this should give existing investors some considerations whether to buy the rights issued.