e2-Capital (378) Co-operates With Softbank (648) To Form JV
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e2-Capital (378) Co-operates With Softbank (648) To Form JV
Feb 01, 2001 - 17:26:27 HKT
QuamResearch
In order to leverage the international recognition of Softbank Corp., e2-Capital will dispose of 51% interest of e2-Capital Securities to Softbank. e2-Capital interprets this move as a co-operation with Softbank but not an asset sale, and this should be a win-win transaction. Perhaps this is true, but e2-Capital may certainly benefit more.
The sale consideration is HK$318.5 million, which will be paid by HK$130 million in cash and the remaining $188.5 million by new SIIS shares at HK$0.98 per share, representing a discount of 15.5% to the last closing price, and 8.7% of the enlarged share capital. Completion of the transaction is expected to be take place in mid-March 2001 and no later than 30 April, 2001. SIIS and e2-Capital will respectively hold 51% and 49% of the new JV, SBI e2-Capital.
e2-Capital Financial Services Group is principally engaged in providing financial services, including investment banking, securities brokerage, portfolio management and management of buy-out funds in Asia and the Untied States. The disposal by e2-Capital of 51% interest in e2-Capital Financial Services Group will result in such group ceasing to be consolidated into the accounts of e2-Capital. The company said that, however, the HK$130 million cash will strengthen e2-Capital's cash flow position.
For the six months ended 30 June, 2000, turnover for e2-Captial increased from HK$94.8 million to HK$672.9 million. Profit also increased from HK$10.8 million to HK$54.9 million. Operating profit was HK$56.1 million, out of which HK$26.9 million was from the financial services division, representing 49% of the operating profit. Thus the ceasing of consolidation of accounts for this division wwill certainly drag down the company's profit. The audited net asset value and profit before tax of e2-Capital Financial Services Group as at 31 December, 1999 were HK$71.9 million and HK$5.9 million respectively.
e2-Capital said that no concrete plans have yet been formulated for the use of the HK$130 million net proceeds. The proceeds will be used as general working capital of the group. Mr. SJ Wong, the president and CEO of e2-Capital told QuamResearch this afternoon that they might be distributed to shareholders.
The new JV will be used by Softbank as a preferred investment bank in relation to "Net-Trans" and "Time Machine" management and certain financial services, in particular tech investment banking, securities trading, portfolio management and management of buy-out funds. Net-Trans is "the main focus" of Softbank and is described as devising e-business strategies and converting existing off-line businesses into on-line businesses. In addition, the Time Machine Division is in charge of taking successful overseas Internet business models and implementing them locally.
For the 15 months to June 30, 2000, turnover was HK$204 million compared to HK$170 million for FY 1999. Net loss was HK$29.8 million compared to a loss of HK$32.4 million in 1999. Thus perhaps the ultsimate motive is to diversify its business to enlarge the revenue base of SIIS. The company will also focus on some IPO preparation counseling services.
Being an incubator, Softbank have experienced its golden time but now the IT industry is declining. As a result, the valuations of many of its investments, including e2-Captial, have dropped significantly. The company bought 65 million shares in e2-Capital for HK$78.8 million, but these are worth only HK$30.55 million at today's 47 cents per share.
Softbank will also swap shares with Chinadotcom and will set up a JV with the same. The deal is under discussion and, a formal announcement will be released next week.
For the purpose of expanding the business of e2-Capital Securities, SIIS will consider providing funding to e2-Capital Securities, which may take the form of equity investment or shareholders loan.
e2-Capital is also engaged in biotechnology advisory. This business is ranked up in the first half of 2000. In addition, a framework for the implementation of eCommerce solutions was established in the middle of 2000, and OpenIBN, an online open investor-broker network to facilitate equity capital raising, was launched in November 2000.
In a press conference, Mr. Yoshitake Kitao, the chairman, president and CEO of SIIS, said: "The consideration is not too high, since the future prospect is more important. While we are acquiring the assets of the company, human capital also. So we believe the valuation is justified." However, this move may not be welcomed by investors. SIIS's stock price dropped 12% from HK$1.16 yesterday to today's HK$1.02. On the other hand, e2-Capial's share price has gone up 12% from HK$0.42 to HK$0.47.
At today's closing price, Softbank and e2-Capital are capitalized at HK$1,932.7 and HK$539.1 million respectively.
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