Friday, February 25, 2011

Star ... Feb11

Its cash pile will shrink substantially after paying the hefty special dividend that it declared in Oct 2010.

Its cash reserves are expected to contract to rm150 million in 4QFY2010 ended Dec after it forks out rm300 million to reward shareholders with a net special dividend of 40.6 sen per share.

The amount of cash in its coffers could be even lower if it continues to buy more newsprint. In 2009, Star was sitting on 15 months’ worth of newsprint but based on in its balance sheet, the group appears to be replenishing its inventory.

As at Sept 30 2010, Star’s inventories increased significantly to rm182 million from rm78 million in March last year. This could have been due to a purchase of more than rm100 million worth of newsprint during the six months.

The depleting cash pile raises the question as to whether Star will go to the capital markets to raise funds something it has done successfully in the past owing to its strong cash flow. It issued debt paper twice in the last 10 years.

As at Sept 30, 2010, Star had debts of only rm56.4 million, while cash stood at rm494 million. That was before the special dividend was announced. So the next quarter results will reveal the actual amount of cash it has left. Assuming that it is less than rm150 million, as expected, observers feel that it is likely to raise funds again by issuing debt paper.

Already, there has been market talk Star is likely to raise rm600 million to rm700 million. If that turns out to be true, the amount raised will be much bigger than the two previously fundraising exercises.

With its strong cash flow, it can afford to leverage to raise cheap money in the fixed income market.

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