Interview: Bond Buyback On Front Burner For Cordlife CEO

A TOP EXECUTIVE with umbilical cord blood play Cordlife Group Ltd (SGX: CLGL) said the Singapore listco had a clear strategy for proceed use from a recent disposal.

On 14 September, Cordlife held an EGM in Singapore in relation to the proposed disposal to Golden Meditech Holdings Ltd (00801) of Cordlife's 7,314,015 ordinary shares in China Cord Blood Corp (CCBC) and 7% senior unsecured convertible notes due 2017 issued by CCBC to Cordlife.

The Singapore-listed owner and operator of private umbilical cord blood banks across Asia expects a net cash inflow of around 95.8 million sgd from the disposal of its equity holdings and convertible notes in China Cord Blood Bank along with related borrowing settlements.

Golden Meditech plans to privatize CCBC.

Mainland China represents one of the highest growth potential markets in Asia with a burgeoning middle class, and the PRC's middle class population is estimated to grow from 290 million in 2011 to a projected 590 million by 2025, which means a progressively larger customer pool for Cordlife's products catering to the mother and child segment, management said in its most-recent annual report.


Asia Fund Space: You expect a net cash inflow of around 95.8 million sgd from the disposal of China Cord Blood Bank, with proceeds from the proposed disposal likely to be used for your future business expansion, including expanding operations in our existing geographical footprint, which includes the PRC.

And you recently said that: "Proceeds may also be used to deleverage Cordlife's financial position and/or for distribution to shareholders."

Do you have a more precise update on the proposed use of the nearly 100 million sgd in cash inflow?

Cordlife CEO & Director Mr. Jeremy Yee:  I can't give you an exact number because it has not yet been made public, and there are disclosure rules I must abide by before telling the public.

I can tell you that deleveraging means buying back all bonds.

There are some folks saying, 'Hey, you've got two more years for your bonds, why don't you just leave it there?'

But there's already a deleveraging process position underway which some investors may not be comfortable with, so yes, we definitely try to deleverage our entire balance sheet by buying back all our bonds.

Note the difference about a typo in an earlier ppt which I caught and corrected in an earlier EGM...We are NOT redeeming the bonds, but we are most likely going to be buying them back.

The redemption process for bonds in Singapore requires us to distribute a circular to our bondholders and convene a bondholders meeting, and bondholders will basically say, 'Well, I want to have discounts in my redemption'.

That means you are going back to the table to renegotiate with your bondholders for a new prospectus in the circular, and that's not correct as the bonds are publicly traded instruments too.

The price goes down, people buy. Price goes up, people stop.

There's always a theoretical price for a bond so it's a fixed coupon payout at the end of the day, so the bond prices hit a ceiling, and no one in their right frame of mind will want to pay more than the maturity price for the bond in question.

Asia Fund Space:  Does Cordlife currently have any other assets that perhaps aren't quite performing up to par and might be on the disposal table?

Mr. Jeremy Yee:  No, we don't plan to dispose of any more assets at the moment, and we are pretty good at restructuring our assets time and time again.

Before our acquisitions in Indonesia, the Philippines and Hong Kong, they were all loss making entities.

But after we took over, we turned all three companies around, because we understand the principle of making them profitable.

The only one right now that is essentially not performing that I don't have full control of is StemLife Berhad.

So we had 480,000 sgd associated accounting loss from them plus 2.6 million sgd in payments, because we bought at 60 cents Malaysian ringgits, and it's dropped a bit since then, so based on that we had to revalue the company.

But that's not to say the company is not great.

Its EBITDA is still quite solid and in the sense that when we first bought it, it had some 70 billion ringgit in cash, with several properties not revalued since 2006, and still had a growth market in Malaysia with 120,000 babies born per year.

I will say that its previous management was not fully focused on growth.

They were more focused on preservation, which is wrong because you don't treat equity with preservation.

You treat equity with a balanced growth model, so the only one of our assets that is not fully performing (up to potential) is StemLife Berhad, so I hope we can turn it around.

Cordlife Group Ltd owns and operates private cord blood banks in Asia. The Company's business is focused on providing Cord Blood Banking Services which include the collection, processing, testing, preservation and storage of umbilical cord blood at birth. Cordlife is the first cord blood bank to be set up in Singapore and one of the first in Asia. It has strong a track record of cord blood releases for transplants. It offers cord blood banking, cord tissue banking and metabolic screening. It has leading market sharein seven markets: Singapore, Hong Kong, Malaysia, India, Indonesia, the Philippines and China.

Golden Meditech Holdings Ltd is China's leading integrated-healthcare enterprise. Golden Meditech is a first-mover in China, having established dominant positions in medical devices and healthcare services markets, including cord blood stem cells storage and hospital management, thanks to its strengths in innovation and market expertise and the ability to capture emerging market opportunities.

(Note: This story is contributed by Andrew Vanburen. Mr. Vanburen has served as a government official focused on international trade at the American Institute of Taiwan in Taipei, and worked in financial journalism for nearly a decade in both Beijing and Shenzhen. He holds a Master's Degree from New York University. He is currently Director at Hong Kong-based Asia Fund Space. For more information, please visit: www.asiafundspace.com)