MRCB’s offer for rights to start trading on Thursday

PETALING JAYA: Malaysian Resources Corp Bhd (MRCB), which is raising between RM1.7bil and RM2.25bil from a rights issue, saw its renounceable rights issue going “ex” yesterday.

The entitlement date is tomorrow and the offer for rights will start trading on Oct 5. They will cease trading on Oct 12.

The last day and time for acceptance, renunciation and payment of the rights will be on Oct 20. Following that, the listing of the rights shares on Bursa Malaysia will take place on Nov 3.

Shares of MRCB had started adjusting downward last week ahead of the ex-date. It closed at its low of 88 sen on Sept 26 and unchanged at 92.5 sen yesterday, on a volume of 20.67 million shares.

MRCB’s renounceable rights issue consists of up to 2.85 billion new shares of MRCB, together with up to 570.76 million free detachable warrants, on the basis of one rights share for every one existing MRCB share held by the entitled shareholders as at 5pm on Oct 4, 2017. One free rights warrant will be given for every five rights shares subscribed.

MRCB had earlier fixed the issue price for its rights shares at 79 sen per rights share and the exercise price for the rights warrants at RM1.25 per rights warrant.

The issue price of 79 sen represents a 20.2% discount to its theoretical ex-all price of 99 sen.

Based on this fixed rights price, MRCB will raise between RM1.7bil and RM2.25bil, depending on the minimum and maximum scenario.

MRCB is looking to raise at least RM2.2bil from its shareholders, a move that would see its gearing being reduced to almost zero.

MRCB has also entered into an underwriting agreement with RHB Investment Bank, CIMB Investment Bank Bhd and CIMB Islamic Bank Bhd to underwrite up to 1.73 billion rights shares together with 345.55 million rights warrants.

This represents 60.54% of the total rights shares with rights warrants to be issued under the maxi- mum scenario, for which no undertaking has been obtained from other shareholders of MRCB.

MRCB had earlier mentioned that the bulk of the proceeds would be used for the National Sports Complex (NSC) privatisation and repayment of debts.

“Assuming the sum allocated for the NSC remains unchanged at RM975mil, as earlier indicated, this would leave a balance of RM742mil for debt repayment,” Hong Leong Investment Bank (HLIB) said in a Sept 20 report.

HLIB said the rights issue would reduce net gearing from 99% as of the second quarter to 47% on a proforma basis. Interest savings is expected to amount to RM47mil on a full-year basis.

Kenanga Research said that MRCB has to date won RM467.9mil worth of jobs, making up 47% of Kenanga’s order-book replenishment of RM1bil.

Kenanga has kept its “outperform” call on MRCB, but with a lower sum-of-parts (SOP) driven target price of RM1.14 from RM1.23 previously, after accounting for a lower rights issue price of 79 sen.

Meanwhile, HLIB has lowered its ex-rights target price from RM1.09 to RM1.00 (also on a SOP basis) after adjusting its assumed rights price from RM1.00 to 79 sen.

This target price implies an expensive financial year 2017 (FY17)-FY18 price earnings of 75 times and 54 times, respectively.