SouFun Holdings Limited (SFUN) is offering 2.00% convertible senior notes worth $350 million. Additionally, the initial purchasers will be provided with a 30-day option to buy up to an additional $50 million principal amount of notes.
The proceeds from the 5-year debt will be deployed for working capital requirements, meeting capital expenditure, funding business expansions, acquisitions and introduction of new businesses or services, and other general corporate purposes.
SouFun expects to close the transaction on Dec 10, 2013. The new issuance will require the company to pay interests half-yearly, once on Jun 15 and then on Dec 15 every year, starting from Jun 15 next year.
As of Sep 30, 2013, the debt-to-capital ratio for SouFun was 0.58x which represented an improvement of 7 percentage points from 0.65x at 2012 end. However, with the issuance of the $350 million debt, the debt-to-capital ratio is expected to deteriorate.
The new issuance would require SouFun to pay an annual interest of $7 million. Nevertheless, the company’s solid operational performance generates funds adequate enough to service the debt uninterruptedly. Its interest expense in the third quarter of 2013 increased 28.5% year over year to $3.6 million which is expected to increase further, with the issuance of the debt.
SouFun currently carries a Zacks Rank #1 (Strong Buy). Other players in the business services space, which look attractive at current levels, include Competitive Technologies Inc. (CTTC), Core-Mark Holding Company, Inc. (CORE) and Furmanite Corporation (FRM). All these stocks carry a Zacks Rank #2 (Buy).