HRBN - comments from ROTH .........
HRBN: Selloff Unjustified, New Loan Provides
Confidence, Maintain BUY
The Harbin / China Development Bank news this morning is significant:
Implications include: 1) HRBN has passed CDB's due diligence process,
which in our view adds significant credibility in unstable markets. To our
knowledge, HRBN is the first U.S.-listed non-state-owned Chinese company
that received loans from CDB. 2) Even with HRBN's prospect of going
private, CDB is willing to take CEO's shares (instead of fixed assets) as
collateral. As such, we speculate that CDB may become a willing investor
supporting the privatization.
We remain confident that the HRBN buyout is on track, with our argument
supported by today's CDB loan. We believe Friday's decline presents an
attractive opportunity. Reiterate BUY and $26 price target.
What triggered the selloff? HRBN shares sold off nearly 15% on heavy
volume in the past two sessions, following fraud allegations against Rino
International (RINO-NC-$6.07). A number of listed companies audited by
Frazer Frost experienced heavy selling pressure. Investors are expressing
concern that the buyout may fall apart should HRBN be unable to pass the
vigorous due diligence by a big-4 auditor.
CDB $50M loan a vote of confidence. China Development Bank (CDB)
agreed to provide ~$50M in loans to HRBN to repay a $15M 10% bridge loan
from Abax Emerald and fund CAPEX, at very attractive rates (LIBOR + 3%
for $35M USD loan and SHIBOR + 2.5% for $15M RMB loan, with a
weighted average effective rate of 4.0% APR). With $740 billion in assets,
CDB is China's major policy bank serving the country's macro policies and
providing mid-term to extra long-term loans (2 to 10+ years).
AI
