UMW HOLDINGS BHD

UMW Holdings ( UMW) is proposing a rights issue to finance the potential acquisition of MBM Resources (MBMR).

UMW is proposing to acquire MedBumikar’s entire 50.07% stake in MBMR for a cash offer of RM2.56 per share or RM501mil.

If the offer is accepted, UMW will be obliged to undertake a mandatory general offer (GO) for the remaining shares in MBMR at the same offer price.

The consideration for the remaining shares in MBMR will be satisfied either via cash consideration or issuance of new UMW shares at an issue price of RM6.09 per share, based on the exchange ratio of 21 new UMW shares for every 50 remaining MBMR shares.

Under the full cash consideration, UMW will need to raise up to RM1.1bil to satisfy the funding for a 100% stake in MBMR, working capital for the enlarged UMW group post-completion and estimated expenses related to the proposals.

Meanwhile, under the full shares scenario, UMW will need to raise a lower amount of RM559mil, since the remaining MBMR shareholders will swap their shares for new UMW shares.

The proposed rights issue is intended to be undertaken on a full subscription basis whereby UMW plans to procure irrevocable written undertakings from Permodalan Nasional Bhd (PNB) and its fund under management to subscribe in full their respective entitlements under the rights issue.

UMW also intends to procure an underwriting agreement for the remaining rights shares, for which no undertaking has been obtained.

Apart from that, UMW indicated that the RM117.5mil cash portion of the proposed acquisition for a 10% stake in Perodua from PNB Equity Resources will be satisfied via internal funds.

But it is important to highlight that the rights issue will only go through if the proposed MBMR acquisition is completed and the GO is implemented.

If all the necessary approvals are obtained, management expects the proposed rights issue to be completed by the third quarter of 2018.

Under the full cash scenario, the entitlement basis would be one rights for every five UMW shares, at RM4.40 for each rights share.

Accordingly, the exercise will result in the issuance of 244 million rights shares and gross proceeds of approximately RM1.07bil.

Under the full shares scenario, the entitlement basis would be one rights for every 10 UMW shares, at RM4.30 for each rights share.

Accordingly, this would result in the issuance of 130 million rights shares and gross proceeds of approximately RM559mil.

“Based on full cash scenario, we estimate UMW’s FY18 to FY20 earnings per share (EPS) will grow marginally by 1% to 2% due to 25% dilution impact from the issuance of 292 million new UMW shares.

“Based on full shares scenario, UMW’s FY18 to FY20 EPS will grow slightly higher by 3% to 5% due to 22% dilution impact from the issuance of 212 million new UMW shares,” said CIMB Research.