Smart Buying AND Astute Selling

In late December of 2007 when the financial debacle had begun to unfold from a housing crisis to a credit crunch, Pacific Basin took the challenge and launched its convertible offering – the largest by an Asian shipping company ever and the second largest convertible offering by a Hong Kong issuer since the beginning of 2006. Raising USD 390 million with the overallotment exercised for 5 years at a fixed 3.3% on an unconditional and unsecured basis was truly remarkable especially in such tough market conditions.

Fast forward to a year later and the deteriorating global market conditions have created opportunities for Pacific Basin to retire the convertible bonds early at a very attractive price. Over a 4 day execution period between 14 October and 17 October 2008, the company was able to buy back convertible bonds worth USD 60 million at face value for USD 39.35 million or an average price of only 65.6%. This off-market buyback exercise immediately created USD 22 million of net present value for the company. At the time of publication, we noticed that Pacific Basin has bought back and cancelled USD 76.05 million convertible bonds, at around 20-35% discount, and we expect the management to continue to do so given its current strong balance sheet. All these transactions will save the company around USD 23.6 million at the time of redemption on the amount repurchased.

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