Fund raising becoming difficult in Malaysia
KUALA LUMPUR - Fund raising is becoming increasingly difficult in the current market environment.
Boustead Holdings Bhd is one case in point where its rights issuance was oversubscribed by only 0.28 per cent.
The close-to-even subscription rates makes a glaring statement especially for a big company with a market capitalisation of 3.88 billion ringgit (US$949.6 million).
Its share price had also taken a beating and is trading at a multi-year low of 2.68 ringgit while its new rights shares were priced at 2.55 ringgit.
Boustead, a plantation-based company had raised 1 billion ringgit in fresh capital to reduce debts including to fund its property development and other investment activities. The company, 58.4 per cent owned by the Armed Forces Fund Board, earlier said it wanted to reduce its gearing from 1.1 times presently to 0.9 times by the end of the year.
The difficult environment may be the new normal if sentiment on the equity market remained uncertain, analysts note.
This may also indicate that investors are less willing to cough up their own cash to plough into their investee companies due to various possible reasons including the soft market sentiment of late.
Another company to watch closely will be Malaysia Building Society Bhd (MBSB) that had recently announced that it wants to raise funds of up to 1.7 billion ringgit through rights issuance.
MBSB which last traded at a market capitalisation of 3.16 billion ringgit said it will soon send out its prospectus to its investors to allow them to decide if they want to take up their rights issuance.
Interpacific Research’s head of research Pong Teng Siew told StarBiz that the weak sentiment for fund raising was indicative of a soft market environment where investors believed there was not much upside to prices.
“People generally may have less money to put into stocks. We have seen worse situations than this actually, especially after the Asian crisis in 2001 to 2002. It was very bad then. There were waves of initial public offerings that were undersubscribed due to the poor liquidity,” Pong said.
“Today while the GDP is growing it is also not a very true indication of money supply. Recent statistics showed that M1 money supply have shrunk. M1 is the most liquid form of money that can be put into the equity market. Liquidity also comes from lending by the bank and margin financings have also shrunk,” he added.
Some other recent examples of companies which have seen their investors clearly undersubscribing to their rights issues are Mulpha International Bhd, PUC Founder (MSC) Bhd and TH Heavy Engineering Bhd (THHE).
Mulpha’s rights issue was undersubscribed by 13.76 per cent at the close of acceptance and payment on June 1 while the two other companies had even bigger undersubscription rates.
PUC’s 28-for-20 rights issue of up to 83.9 million ringgit nominal value of irredeemable convertible unsecured loan stocks (Iculs) with warrants was undersubscribed by 42.8 per cent while THHE’s rights issue of Islamic irredeemable convertible preference (ICPS-i) issuance exercise had been heavily undersubscribed at 69.96 per cent.
Notably, LTH was the sole subscriber of THHE’s rights issue exercise.
However, this does not really come as a surprise given the weak sentiment surrounding the oil and gas industry.
THHE is also in a financially difficult position with a recent reported first quarter ended March 31 that saw net losses almost doubling to 33.44 million ringgit while quarterly revenue shrunk three times to 14.5 million ringgit.
Other smaller capitalised and mostly Ace Market companies have, however, seen sound oversubscription rates to their fund raising plans.
These included Prolexus Bhd (oversubscribed by 37.75 per cent), Netx Holdings Bhd (100 per cent subscription), Connectcounty Holdings Bhd (oversubscribed by 14.71 per cent) and Spring Gallery Bhd (oversubscribed by 21.7 per cent).
This trend indicate that there was not much appetite among shareholders of bigger companies – who are mostly institutional – to add to their holdings by buying into the rights shares.
On the other hand, smaller companies that have a few key shareholders and less occurrence of institutional funds as their long-term holders, have seen stronger subscription rates.
(US$1 = 4.09 ringgit as of 6/20/2016 via oanda.com)
