Osim drops by most in 3 months on convertibles

SINGAPORE – Osim International, Asia’s largest maker of massage chairs, dropped by the most in almost three months after a sale of S$170 million convertible bonds sparked concern the company is preparing for a big acquisition, the Bloomberg news agency reported.

Osim dropped 2.8 per cent, the biggest decline since June 5, to S$2.74, after falling as much as 6.4 per cent earlier. Given that the company already has cash on hand of about S$300 million, the fundraising exercise could be in preparation for a “big acquisition,” UBS analyst Chirag Saglani wrote in a note to clients.

“Given the already strong cash position, we believe this issuance means that there could be a potential acquisition around the corner,” Mr Saglani said. “If not, capital efficiency would be a concern.”

Proceeds from the sale of zero-coupon convertible bonds will be used to fund potential acquisitions, expansion plans and general working capital requirements, Osim said in a statement to the Singapore bourse. The notes can be converted into equity at S$3.525 per share, it said.

“We believe the terms are very favourable and it is a relatively cheap source of funding for the company,” DMG & Partners Securities analyst James Koh wrote in a note to clients. “The issuance is expected to buff up Osim’s war chest even further and put it in a comfortable position to capitalise on merger and acquisition opportunities.”

The company is in talks to expand its international franchise with stores in Turkey and Russia, Osim’s Chief Executive Officer Ron Sim said in an interview this month.