Martin Lee @ Sg
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CitySpring Rights Issue But No Thanks

Cityspring has announced that they will be doing a rights issue (again).

This time round, they are raising approximately S$210.2 million by issuing 538,962,054 new ordinary units in CitySpring at S$0.39 per Rights Unit on the basis of 11 Rights Units for every 20 ordinary units in CitySpring.

This rights issue is subject to unit holders and regulatory approval.

As a business trust, CitySpring holds assets that can be said to have a strong economic moat and monopoly.

  • City Gas, the sole provider of town gas in Singapore.
  • SingSpring, Singapore’s first and only large-scale seawater desalination plant.
  • Basslink, the only electricity interconnector between Tasmania and mainland Australia.

I was once interested in CitySpring as I liked the idea of owning all these assets that can produce a steady dividend for unit holders.

However, I didn’t like CitySpring’s balance sheet and their management’s repeated emphasis on the cashflow portion of their financial statements (while ignoring the profit and loss statement).

Yes, you can keep on paying out dividends based on the operating cashflows but surely you will need to account for the capital expenditure one day? And true enough, we have another rights issue.

Since CitySpring listed in February 2007, they have given out dividends worth a total of approximately S$149 million.

The previous rights issue in September 2009 raised about S$235 million.

As a pure dividend play, this would have been a disaster for any investor.  Receiving S$149 million and giving back S$445 million. Ouch.

And who can forget the ridiculous performance fee that was once collected due to the spike in CitySpring’s share price?

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