China Fishery Group

[d.o.g.]

does it make any sense that mackerels caught in these waters are sorted and exported to a factory to ground into feed and sold to maybe countries that farm salmon, sorting and exporting labor transportation all cost money. Maybe in those countries that farm salmon they buy locally caught mackerel then it makes more sense.

The NYT article I linked to makes clear that the waters off Chile are the main source of jack mackerel, and there a lot of the jack mackerel is used to feed the local salmon farming industry. Chile is the world's second largest producer of farmed salmon (Norway is #1 - 33%, Chile #2 - 31%).

Here's an article describing the history of the jack mackerel fishery and an ongoing dispute between Chile and Peru over overfishing:

http://digitaljournal.com/article/319260

Here is another article from The Santiago Times (a Chilean newspaper):

http://www.santiagotimes.cl/chile/enviro...low-levels

It quotes a Greenpeace study which found that jack mackerel stocks have declined by 90% in the last 20 years.

In my opnion there's actually a lot of fish still in the seas

Sure, there are plenty of fish in the sea, but all scientific data to date points to production (fishing) outstripping supply (reproduction) which means that it is only a matter of time before any particular fish stock becomes too scarce to commercially exploit. As technology improves that day draws ever nearer. It's like oil - we won't run out of oil, but we are running out of cheap oil. There will always be some oil too difficult or expensive to extract. Likewise, short of a nuclear holocaust there will always be some fish in the sea, but there may not be enough to matter commercially.

And of course it's not just overfishing - pollution is a huge problem. Not just plastic debris (which has resulted in some gigantic garbage piles in specific locations where the currents meet) but also chemical run-off from farming which has resulted in dead (low-oxygen) areas where only jellyfish survive. We may well see jellyfish becoming an important part of our diets in the next couple of decades. Am I an alarmist? No - just a realist who happens to read a fair bit.

[yeokiwi]

Historical lesson in Canada. Overfishing of cod.
http://sitemaker.umich.edu/section003group2/home

After 15 years of banned fishing, the cods are finally back to 1/3 of its original population.
http://www.newscientist.com/article/dn20...eback.html

Chile, including the rest of the multinational fishing groups, is digging her own grave.

[Nick]

I am quite surprised to see CFG making new 52 week low as it currently trades at 79.5 cents (a far cry from its $2.30 peak early last year) !

I guess the market remains a little jittery about its proposed Senior Notes offering and the interest it might have to pay.

http://www.reuters.com/article/2012/07/1...8320120717 [S&P Report on the Notes Offering]

Is there a price which forummers might be willing to pay for this highly lucrative (and yet highly leveraged) company ?

(Not Vested)

[Blackjack]

There is this new Fishing Law in Chile which is set to be effective 2013. I wonder if this could be the reason.

Apparently, this new law is set to benefit only the major fishing conglomerates, leaving nothing for the local fishermen. From the sound of it, it seems rather serious protests have been going on.

Speaking of which, there used to be this ardent follower of Pac Andes/CFG by the name of Qiaofeng in CNA forum previously. I wonder if he is a member of this forum too.

[Musicwhiz]

Speaking of which, there used to be this ardent follower of Pac Andes/CFG by the name of Qiaofeng in CNA forum previously. I wonder if he is a member of this forum too.

There is a member registered by that nick, but he has not posted anything for some time.

[crabcrab]

China Fishery issued 9.75% bond likely means that it is in need of money urgently....... Hmm....

[Nick]

Guidance on China Fishery Group’s planned seven-year non-call four Global bond has been set at the 9.75% area and the deal is on course to price tonight in New York hours. Initial guidance had been set in the high 9% area. Books stand at US$850m.

http://www.ifrasia.com/bonds-china-fishe...73.article [Article]

Assuming they do raise proceeds from this offering, I am guessing they will prepay the 4th VOA and secure more VOA contracts for the North Pacific region. Possibly adding more vessels in the South Pacific hmm. CFG closed at 77.5 cents which is a new 52 week low. CFG generated 7 US cents EPS in 1H 12 and paid 4.5 SG cents dividends in FY 11.

(Not Vested)

[Blackjack]

There is a member registered by that nick, but he has not posted anything for some time.

Thanks MW. I just googled for his blog. It seems that he has been rather inactive there as well.

Guidance on China Fishery Group’s planned seven-year non-call four Global bond has been set at the 9.75% area and the deal is on course to price tonight in New York hours. Initial guidance had been set in the high 9% area. Books stand at US$850m.

It turns out to be a rather standard issue of US300mio. An early redemption of US225mio at 9.25% was exchanged for a longer dated issue of US300mio at 9.75% till 2019. Nothing spectacular.

[Musicwhiz]

50 bps higher? That's rather expensive debt.....

[yanziyang]

Research report from DMG:

Trimming our FY13 earnings by 7%. China Fishery (CFG) is raising US$300m through Senior Notes at interest rate of 9.75% pa. The net proceeds will likely be used for (1) prepayment of long-term supply agreements (LSAs) estimated to cost between US$145m – US$174m, as well as (2) repayment of debt which is estimated at US$117m. We believe the net impact will dilute FY13 earnings by 7% to US$141m. We are positive on CFG for its North Pacific operation which has a strong track record of profitability. Key risk stems from its execution in the South Pacific. Currently trading at 4.7x FY13 P/E, CFG appears attractive compared to its five year historical mean of 9x. Maintain BUY with lower TP of S$1.00 (from S$1.20 previously) based on 6x FY13 P/E.

Proceeds to be used for new LSA and debt repayment. CFG intends to use the proceeds for prepayment of its 4th LSA. Its 4th LSA is currently contracted under a daily fee but negotiations for a prepayment option are ongoing. CFG also intends to use the proceeds to repay US$117 of loans due this year.

No financial impact expected on new LSA terms (from VOA terms). CFG has replaced its four vessel operating agreements (VOAs) with long-term supply agreements (LSAs). We understand that this should not have significant financial impact to CFG as the underlying commercial terms remain substantially unchanged. Replacing the VOAs with LSAs mainly reduces CFG’s role in providing assistance to operations of the fishing vessels.

Valuations attractive trading at 4.7x FY13 P/E. We think valuations appear attractive with CFG currently trading at 4.7x FY13 P/E. Our TP of S$1.00 is based on FY13 P/E of 6x, which is 28% lower than its peer average of 8.3x, and a 33% discount to its five year historical average P/E of 9x Maintain BUY.

(vested)