Thursday, February 11, 2016

My Saizen arbitrage

Just received a circular for Saizen unit holders, telling us a lot of finalized details about the upcoming disposal of their entire portfolio to Trangle TMK. Of note here is the special distribution of $1.056 per unit to unit holders. I bought and sold a few rounds already, but after they made the announcement near Nov in 2015, I bought it again at $1.0938 (inclusive of comms), hoping to arbitrage on this, which I blogged about it here. Let's see how it goes.

About 30.3 million SGD is to be paid out as special distribution, representing $1.056 per unit. From here, I worked out the number of outstanding units to be 287,026,515. Another 25.7 million SGD ($0.0895 per unit), amounting to 5% of the purchase price is to be kept in an escrow account for up to 4 months after the completion of this entire exercise and liable to be claimed. The cost includes 3.4 million SGD ($0.0118 per unit) for expenses related to post completion maintenance of the company, plus another $1.2 million ($0.0042 per unit) for the manager.

Not to forget the normal (as opposed to special) distribution in Mar 2016, amounting to about $0.0310 per unit (from Jul 2015 to Dec 2015), which is based on last year's DPU.

The summary is as follows:

Special distribution: $1.056
Normal distribution: $0.031
Escrow account: $0.0895
Sub total: $1.1765

Post completion expenses: $0.0118
Cost paid to manager: $0.0042
Sub total: $0.016
Total: $1.1605

Buy price inclusive of comms: $1.0938
Percentage profit: 6.1%

That represents the max amount provided that none of the escrow account set aside is withdrawn to paid for anything PLUS the distribution in March matches last year's distribution at $0.031. If say, we take 50% of the amount set aside in the escrow account, my returns will be 2.3% in less than a year. Not impressive, but okay lah.

The actual amount remains to be seen, and I might have to wait till Aug 2016 to see it all completed.


After throwing this post to the universe, I was reminded that there's another distribution not counted in. It's the period from Jan 2016 to the completion date, which is stated as "on or before 31st March 2016". The income collected during this period is technically not TMK but the unit holder, hence there should be another final distribution amounting to about half of the 1st half DPU, which stands at roughly $0.014. This is a significant amount, pushing the max returns to nearly 7.4%.

So good ah? Did I miscalculate? How come the price of Saizen still lingers around 1.09, which is my buy price? Haha


SMK said...


la papillion said...

Oops, still living in 2015 lol! Thanks for the Eagle eyes ;)

Yisien said...

Sorry but I am quite confused. Means that after they disposed all the properties then only they will pay us unit holders by special distribution and normal income distribution. Maybe some others? Means that we are not going to receive it one shot?

la papillion said...

Hi Yisien,

From what I understand, yes, it's not going to be one shot. The reason is that they can't ascertain the cost until the deed is done. The normal DPU is business as usual, which will be paid at end March. The special dividend might be much later, with the date unknown. Then finally, there is a possibility of having a final distribution once all the costs are settled and all the final cash will be given to unit holders less management cost. You might have to wait till Aug to see everything closed.

la papillion said...

They announced that for the period ending 31st Dec 2015, they will distribute 2.83 cts instead of 3.1 cts. Payable on end of March 2016. That will reduce my returns a little haha

Sanye ◎ 三页 said...


For the final distribution, it may not be what you have calculated.
This sum is set aside as a kind of "warranty provision". You are assuming that there is no claim from the buyer for whatever defect, which is the best case scenario.

Should there be any claim during the 4 month period, the final distribution will be less.

la papillion said...

Hi Sanye,

Thanks for the reminder. I did say that it's the max returns provided there's no claims or whatever. There's actually two parts to the final distribution (i think).

1) Income collected from Jan 2016 to completion date around March (representing 1 quarter of DPU)

2) Distribution from that escrow account after paying whatever defects or claims from the transactions

There should be something from (1), and perhaps a portion of (2) as well.

Yisien said...

Hi LP,

Actually I bought the shares last November at 0.825.
I am actually thinking to sell it at current price and get the moneys first to search for other investment opportunity. If I wait till Aug 2016 to get 1.17 (?), but I have wasted the time cost?

la papillion said...

Hi Yisien,

Well, the upside for saizen is already fixed, as well as the duration. So if you have a better buy, and more importantly you don't have spare cash,, then switching might be a good idea to do.

Yisien said...

Hi LP,

From your post, actually you stated that the best case scenario is 1.17 right? The current price for Saizen is 1.09. I will consider the situation and make the decision. Thanks!