1. Usually private equity firm invests in high risk company like XIN not to get 20-30% returns, but MULTIPLY by their investment several times (5X - 10X) over long term.
2. This adds to XIN's credibility like never before. There has never been an investor as reputable and as big as TPG in XIN. These companies simply don't throw away 100 million as a lottery ticket.
3. TPG will be now actively involved in XIN's direction as company. This means TPG will be part of all strategic and tactical decisions. I can not tell you how significant development is this. Having a firm like TPG as a partner along your side is invaluable for any company.
3. The timing of this is incredible. A new CFO will be announced in soon.
This is why one should completely ignore all the negative noise surrounding this.
1. Valuation - Yes the valuation is low. But these big guns almost never pay above market price. This investment has more SYMBOLIC value than anything else. The fact that TPG is involved in this company now is enough to ignore all the details of this deal.
2. Dilution - TPG most likely is not going to do full conversion until they see huge returns. So even if the full dilution happens, the stock will be potentially much higher at that time.
3. Why do they need more cash? - It is not about cash. XIN wanted to establish credibility and they paid a small price for it.
I definitely agree that this adds a tremendous amount of credibility to the company. This should end the "cooking the books" and "cash audit" noise. I'm not sure why so many shareholders are complaining about the $5.48 price since the company has been trading well below that number for the last 5 years. Said another way, TPG is willing to buy 20% of the company at a price that was a 5 year high just two weeks ago.
Another point to add to your list is that this could and should be a trigger for other institutional investors to make investments in XIN. For as smart as the big money is, there is definitely a follow the herd mentality. Now that TPG has taken a large stake, I would be shocked if other institutional investors don't follow suit. More institutional investment will drive the price up much closer to fair value.
Less than a year ago XIN was trading for 30% of book value and had a PE of less than 2. It should now be evident to everyone that that deal that looked too good to be true then was actually true. I'm betting the share price will double again in the next twelve months.
Sentiment: Strong Buy
you don't establish credibility by diluting existing shareholders heavily and issuing a convert at conditions close to near bankrupt OCZ recently.
they would have achieved credibility by taking in an equity investment slightly below, at or even above market price or by issuing just the convert at acceptable conditions (interest rate at 2%, conversion price way above current market prices).
At these conditions they just made a giant gift to TPG at the expense of you and your fellow shareholders which further undermines the company's credibility.
A dilution of less than 10% (6 M of new ADS for TPG) is heavily for you ? you should talk with Aerl or LLEN stockholder to know what is a heavy dilution then. Conversion price way above current market prices ? Are you aware that the share price was 3.80$ per ADS less than two months ago you have to imagine that this deal was not conclude in one day. Ok yes compared with the book value it is not a good operation for the shareholder but compared to the nearly 8M of ADS that they bought for 20M$ dollar it is a very good operation. I will agree with you only if they won't use this money in the next 12 months.