Potential dilution of Aeon Credit’s ICULS might trigger shortterm stock overhang
KUCHING: The potential dilution of Aeon Credit Service (M) Bhd’s ( Aeon Credit) Irredeemable Convertible Unsecured Loan Stock (ICULS) full conversion may trigger a share price overhang in its stock during the short-term.
In a recent company update report, the research arm of Kenanga Investment Bank Bhd (Kenanga Research) opined that the share price overhang could occur in the short- term as a full ICULS conversion would represent potential to the research arm’s financial year 2019 estimated (FY19E) earnings per share (EPS) for the group.
Currently, the group has completed the exercises of its one for two bonus issuance and the renounceable rights issue of 432.0 ICULS with a 3-year minum 3.5 per cent coupon; on the basis of 2 ICULS for every 1 existing shares which would raise RM432.0 million cash.
“The conversion price for each of the Rights ICULS has been fixed at RM10.99 on July 27, 201 with the rights ICULS to be listed on September 21, 2017,” added the research arm.
And assuming all factors are as is, Kenanga Research estimates that the total dilution of their FY19E EPS would be by 15 per cent – triggering short-term weakness in the group’s share prices.
While this scenario is negative for Aeon Credit, there are also net benefits to be reped from the cash proceeds of these exercises.
“From our recent meeting, while we are cognisant of the impact of potential dilution, we took comfort from management’s plan for the utilisation of proceeds.
“The cash could be partly used as a buffer to maintain a healthy capital adequacy ratio ( CAR) which will be above Bank Negara Malaysia’s (BNM) requirement of 16 per cent, in anticipation of any potential additional impairment needed from the implementation of MFRS,” guided the research arm.