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DoubleDragon’s (DD) $75 Millon proceeds from bond offering may not be enough to address short-term debts

DoubleDragon Properties Corp. (DD) just recently successfully concluded last July 21, 2020 its maiden US$75,000,000 5-year dollar bond issuance which is now listed in the Singapore Exchange Securities Trading Limited (SGX). According to DD’s disclosure the bond is trading above par or on a premium.

As of end of the first half of 2020, DD had a cash balance of 4.2 Billion Pesos. The bond issuance inspired some confidence among DD’s management. It said in their disclosure that the fresh funds from the bond offering would bring its Total Consolidated Cash Balance to almost 8 Billion Pesos, well above its operational requirements for the coming years.

Dissecting the first half 2020 financials of DD, would give one doubt on whether the almost 8 Billion Pesos cash balance is well above its operational requirement for the coming years.

Short-term loans payable of DD stood at 12.2 Billion Pesos as of June 30, 2020. Short-term loans payable are those payable within the year or within a 12-month period. The almost 8 Billion cash balance would not even be enough to cover those short-term loans payable much more operational requirements for the coming years.

And talking about operations, in the first half of 2020 DD burned cash in its operations. In the past three years only in 2019 that DD did generate cash from operations by increasing the accounts payable (maybe they lengthen the payment terms or delay the payment to contractors/suppliers). It is not surprising that DD is not generating cash from operations since the bulk of their revenue/income (around 64% to 67%) is coming from a non-cash item – UNREALIZED GAINS from changes in fair values of investment property. Unrealized gains from changes in fair values of investment property are professional estimates made my third-party property valuators or appraisers commissioned by DD to value the investment properties of the company.

No cash generated from operations is expected to cover-up the funding shortfall. In their disclosure DD touted its unutilized debt capacity. DD said that: “As of the end of June 2020, Consolidated Total Assets stood at Php 118.25 Billion while Total Equity reached Php 47.86 Billion. Debt-to-equity now stands at 0.94x far below its loan covenant debt-to equity cap of 2.33x which translates to unutilized debt capacity of Php 66.47 Billion.”

Over the years DD had been reliant on debt funding to fund its investment property build-up and operations and at this time DD is counting on it for life support. COVID-19 pandemic risked DD becoming a zombie company.

Disclaimer and Disclosure: This is an independent analysis for discussion purposes with the aim of giving stock traders and investors an independent view point. Accuretti Systems Inc. in the course of day to day trading may have own, or is considering buying or disposing, the shares of the companies mentioned in this commentary.

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