Comments on Raffles Education

Hi, Kit It's Jason. I got two questions on Raffles Education. I am still holing on this counter, and even invested more money around $2.5 last month.

Here are the Qs. Firstly, how will this delisting affect REC's stock price in a short term? Is there any funding trouble for this proposal?

Secondly, what do you think of listing on the H.K market this summer? Any chance of local investors getting disappointed as earnings from China can't flow into Singapore, instead, can go to H.K. In that case, we might, I think, loose growth engine here for further M&A in Asia-Pacific region.

From REC's point of view, they can say they are growing. However, my point of view, Singapore stock may not bear potential in future. I mean Singapore stock can be a side-line comparing to H.K one.I am expecting your clear opinion.Thanks in advance.Jason
2/2/08 9:12 AM

Kit said...
Hi Jason,

The restructuring exercise is intended to consolidate its holdings and at the same time we can expect some savings on listing expenses and synergy from the operations.

I don't think there is going to any significant movement on the share price on the news of this restructuring exercise alone. The latest set of quarterly results may however help to halt the falling share price given the weak market conditions.

The privatisation of Hartford Education will be done by share swap. Therefore no cash payment involved.It will be more complicated for China Education as it is also listed in Australia. RE will offer 50 cents per share in cash and it will probably cost the company some $60 million. This amount can still be covered by existing cash and cash equivalents of more than $143m.

The impending listing in the Hong Kong Stock Exchange of its China operations should be exciting. I don't quite agree with your view that we can no longer enjoy the high growth that we used to do as a result of this spin-off. According to Mr Chew, his ultimate aim is to secure a Shanghai listing. Think of it as promoting from Championship to Premier League if you watch football!

I am very positive because of the following:

1. the listing should raise profile of the company even more in China as the people there can better connect with its operations. Singapore investors are arguably more kiasu and kiasi. Many fund managers and analysts are avoiding S shares like Sars. Listing there may command better valuation.

2. it will facilitate fund raising on its own for its China expansion without diluting the shareholdings of the ultimate shareholders in RE. RE has gone thru many rounds of share placements in recent years. Any further placements of large scale will dilute the founders' shareholdings significantly. I think this is the main reason for the listing.

3. RE will continue to be holding company and there is no change in substance. What changes is the intermediate holdings. The new company can pay RE dividend and RE can distribute the cash to its shareholders like it always does, on a quarterly basis.

4. RE shareholders (you and I included) are likely to be alloted shares in the new China company, maybe as distribution in spicies or bonus issue. You should know that Mr Chew has never disappointed his loyal shareholders. He has been creating values for RE shareholders all these years.

Hope I answered some of your doubts.

Regards,

Kit