25.09.2020
- Private placement red flags minority shareholders should pay heed to
Many cash-strapped companies which require working capital to ensure business continuity at a time when the COVID-19 pandemic is wreaking havoc in the global economy are increasingly seeking the private placement channel to raise funds.
On 9 September, Hibiscus Petroleum Bhd said it is hoping to raise up to RM2 billion – more than double its current market capitalisation – from a proposed private placement of convertible redeemable preference shares (CRPS) to acquire good-value, high-quality producing oil and gas (O&G) assets.
The O&G exploration and production company said it views the proposed private placement exercise as the most appropriate mechanism for fund raising to optimise the chances of acquiring attractive assets in a timely manner.
On 18 September, piling and foundation specialist Econpile Holdings Bhd proposed a private placement of up to 133.7 million new shares or 10% of its total issued shares to provide flexibility in allocating financial resources for the group’s operations.
Based on the indicative issue price of the placement shares of 57 sen – about 5% discount to its five-day volume weighted average price – the company can expect to raise as much as RM76.7 million from the corporate exercise.
Of the 79 private placements announced between 1 January and 3 September this year, 57 of them or 72.15% were announced from May onwards – when it was clear that the COVID-19 health crisis and the Movement Control Order would cause business disruptions (source: The Edge Malaysia CEO Brief, 8 September 2020).
Recall that Bursa Malaysia has on 16 April upped the private placement general mandate to 20% of a company’s issued share capital from 10% previously as it recognises the need “for listed issuers to resume operations and raise funds quickly and efficiently” amid the current state of economic uncertainties.
Stating that the 20% margin is still lower than other developed economies like Hong Kong or Singapore, the market regulator said the interim measure would be effective until December 2021.
The motivation factor
At a glance, private placement or secondary stock offering has emerged the preferred fund- raising path.
A private placement does not entail a prospectus and very often, detailed financial information is not disclosed. Above all else, it can be executed swiftly (and cost-effectively) without the hassle of having to secure the green light from market regulator/s.
However, when a listed entity embarks on a private placement exercise, existing shareholders often sustain at least a short-term loss from the resulting dilution of their shares. Mathematically, the pie has not changed in size but the slice has shrunk to reflect the increased share count.
The dilution of shares commonly leads to a corresponding decline in share price.
Nevertheless, stockholders may see long-term gains if the company can effectively leverage proceeds from the private placement as an investment tool to increase its revenues and profitability.
Or if the new investors are strategically important and it becomes worthwhile to offer them stock price at a discount.
An important factor in determining the long-term impact on the share price is obviously the reason behind a private placement itself.
If the motivation for the private placement is an outstanding opportunity for rapid growth which requires additional funding, then the eventual profits derived from the company’s expansion may push its stock price substantially higher.
Another possible motivation for doing a private placement could be that the company cannot attract large numbers of institutional or retail investors. This might be the case if the company’s market sector is currently considered unattractive or there are only a few analysts covering the company.
In most cases, companies often witness their value depreciating and the private placement is the most viable option to raise funds in order to ensure long term business sustainability.
However, if the company is on the verge of insolvency and did the private placement as a means to prevent bankruptcy, surely the corporate exercise would not bode well for the shareholders.
Likewise, a private placement will be a bane to shareholders if the company is negotiating poorly or worse, the exercise takes the form of a kickback scheme or some self-dealing on the part of the major shareholders or company founders.
Sometimes, private placements to a ‘friendly party’ may be an effort to thwart an impending hostile takeover or to strengthen the grip on the PLC by a particular party.
Safeguard measures for minority shareholders
Taking into account the above scenarios, below are some questions that minority shareholders should consider whenever companies that they invest in embark on a private placement exercise:
- Have one or more private placements been made lately? When was the exercise carried out? Were the monies used responsibly?
- Who are the placees and what are the sizes of the placements? The latter will give some idea of the dilutive effect.
- How many shares are now outstanding and were outstanding when the last year-end statement was made? This too will give some idea of the dilutive effect.
- Is the company still seeing an increase in value (share price) despite the announcement/execution of the placement?
- How long is it expected to take the company to show an increase in profit after the private placement exercise?
- Whether the placement is at a premium to market prices or at a discount? Large discounts may sometimes be suspicious.
In addition to having minority shareholders safeguarding themselves by ensuring they possess sufficient knowledge about the company that they invest in, listed issuers, too, are duty-bound to disclose the views of their board of directors that the 20% general mandate for the undertaking of the private placement exercise is in the best interest of the company and its shareholders.
Similarly, given the non-disclosure condition of the placees, market regulator/s may consider making it mandatory for listed issuers to disclose the portion of institutional and private investors for the reference of future investors.
Devanesan Evanson
Chief Executive Officer
MSWG AGM/EGM Weekly Watch 28 September – 2 October 2020
For this week, the following are the AGMs/EGMs of companies which are in the Minority Shareholders Watch Group’s (MSWG) watch list.
The summary of points of interest is highlighted here, while the details of the questions to the companies can be obtained via MSWG’s website at www.mswg.org.my.
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Date & Time |
Company |
Broadcast Venue/Venue |
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28.09.20 (Mon) |
AirAsia Group Bhd (AGM) |
Broadcast Venue at Redq, Jln Pekeliling 5, Lapangan Terbang KLIA 2, KL |
|
28.09.20 (Mon) |
Benalec Holdings Bhd (AGM) |
Glenmarie Ballroom, Holiday Inn Kuala Lumpur Glenmarie, Shah Alam |
|
28.09.20 (Mon) |
Dominant Enterprise Bhd (AGM) |
Holiday Villa Hotel, Ruby 5, Jalan Dato Sulaiman, Taman Abad, JB |
|
28.09.20 (Mon) |
ACME Holdings Bhd (AGM) |
Kelawai Room, Evergreen Laurel Hotel, Persiaran Gurney, Georgetown, Penang |
|
28.09.20 (Mon) |
Oversea Enterprise Bhd (EGM) |
Restoran Oversea Bandar Baru Sri Petaling |
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28.09.20 (Mon) |
Lay Hong Bhd (AGM) |
Level 9, Wisma Lay Hong, Jalan Empayar Off Persiaran Sultan Ibrahim/KU1, Klang |
|
28.09.20 (Mon) |
AT Systemization Bhd (AGM) |
Menara Lien Hoe, Persiaran Tropicana, Tropicana Golf & Country Club, PJ |
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28.09.20 (Mon) |
Oversea Enterprise Bhd |
Restoran Oversea Bandar Baru Sri Petaling |
|
28.09.20 (Mon) |
Perak Corporation Berhad (AGM) |
Casuarina at Meru Hotel, Jalan Meru Casuarina, Bandar Meru Raya, Ipoh, Perak |
|
28.09.20 (Mon) |
TA Enterprise Bhd (AGM) |
The Auditorium, Level 10, Menara TA One, Jalan P Ramlee, KL |
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28.09.20 (Mon) |
YLI Holdings Bhd (AGM) |
Tricor Leadership Room, Unit 32-01, Level 32, Tower A, Vertical Tower, Bangsar South |
|
28.09.20 (Mon) |
SCGM Bhd (AGM) |
PTD 109444, Jalan Sengkang, Kawasan Perushaan Sri Sengkang, Kulai, Johor |
|
28.09.20 (Mon) |
Omesti Bhd (AGM) |
Ho Hup Tower, Aurora Place, Plaza Bukit Jalil, Bukit Jalil, KL |
|
29.09.20 (Tue) |
Bintai Kinden Corporation Bhd |
Broadcast Venue at Boardroom 3-2-8, Kompleks Kantonmen Prima, Jalan Ipoh, KL |
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29.09.20 (Tue) |
Solid Automotive Bhd (AGM) |
PLO 436, Jalan Gangsa, Kawasan Perindustrian Pasir Gudang, Johor |
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29.09.20 (Tue) |
Kamdar Group (M) Bhd (AGM) |
Broadcast Venue at Board Room 7th Floor, No.7 Jalan Tunku Abdul Rahman, KL |
|
29.09.20 (Tue) |
LB Aluminium Bhd (AGM) |
Staffield Country Resort, Jalan Seremban-Kuala Lumpur, Mantin, N9 |
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29.09.20 (Tue) |
QL Resources Bhd (AGM) |
Broadcast Venue at QL Training Hall, Bukit Jelutong, Shah Alam |
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29.09.20 (Tue) |
Computer Forms (Malaysia) Bhd |
Broadcast Venue at The Conference Room, Menara JKG, Jalan Raja Laut, KL |
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29.09.20 (Tue) |
Talam Transform Bhd (AGM) |
Pusat Konvensyen, Triumph Convention Centre, Menara Maxissegar, Pandan Indah |
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29.09.20 (Tue) |
GPA Holdings Bhd (AGM) |
Broadcast Venue at The Conference Room, Menara JKG, Jalan Raja Laut, KL |
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29.09.20 (Tue) |
Kumpulan Fima Bhd (AGM) |
Broadcast Venue, Training Room, Kumpulan FIma Bhd, Plaza Damansara |
|
30.09.20 (Wed) |
Jasa Kita Bhd (AGM) |
Broadcast Venue at The Conference Room, Menara JKG, Jalan Raja Laut, KL |
|
30.09.20 (Wed) |
Sentoria Group Bhd (AGM) |
Arabian Ballroom, Bukit Gambang M.I.C.E Centre, Kuantan, Pahang |
|
30.09.20 (Wed) |
Magni-Tech Industries Bhd (AGM) |
Berjaya 1, Berjaya Penang Hotel, 1-Stop Midlands Park Centre, Jln Burmah, Penang |
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30.09.20 (Wed) |
Lingkaran Trans Kota Holdings Bhd |
Broadcast Venue, Tricor Business Centre, Manuka 2 & 3, Vertical Business Centre |
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30.09.20 (Wed) |
Widetech (M) Bhd (AGM) |
Dewan Berjaya, Bukit Kiara Equestrian & Country Resort, Off Jalan Damansara, KL |
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30.09.20 (Wed) |
Esthetics International Group Bhd |
Tricor Leadership Room, Unit 32-01, Level 32, Tower A, Vertical Tower, Bangsar South |
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01.10.20 (Thur) |
ES Ceramics Technology Bhd |
Arcadia I, Level 3, Hotel Armada Petaling Jaya, Lot 6, Lorong Utara C, PJ |
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01.10.20 (Thur) |
Hai-O Enterprise Bhd (AGM) |
Broadcast Venue at 6th Floor, Menara Hai-O, Jalan Bukit Bintang, KL |
|
One of the points of interest to be raised: |
|
|
Company |
Points/Issues to Be Raised |
|
AirAsia Group Bhd |
AirAsia has ongoing deliberations with a number of parties for joint-ventures and collaborations that may result in additional third-party investments in specific segments of the group's business. Barring any reversal of flight resumption plans and any major shock to demand, AirAsia foresees that it has sufficient working capital to sustain the business operations. (Page 28 of 2nd quarter report for FY2020)
|
|
Benalec Holdings Bhd |
Financial Performance
How does the Board plan to address the bottom-line result, moving forward?
Is there any impairment loss on contract asset expected in FY2020? If so, how much is the expected amount? |
|
Dominant Enterprise Bhd |
The Group had taken measures to increase exposure of its products and services across the board via electronic commerce and various online shopping platforms. (Page 4 of AR) What has been the Group’s experience in marketing its products and services via electronic commerce and various online shopping platforms and the amount of revenue generated henceforth? |
|
ACME Holdings Bhd |
The Company has paid deposits for the purchase of 52 pieces of freehold vacant lots for shop houses amounting to RM755,187 (2019: RM755,187). The purchase of vacant lots has not been completed as the vendor has yet to fulfil all condition precedent associated with the sale and purchase (“S&P”) agreement.
|
|
Lay Hong Bhd |
The Group’s impairment losses on trade receivables increased to RM11.5 million (2019: RM9.7 million) (Note 14, page 112 of AR2020).
|
|
AT Systemization Bhd |
There was a sharp rise in impairment loss on receivables from RM1.6 million in FY2019 to RM5.9 million in FY2020. (Page 86 of AR)
|
|
Oversea Enterprise Bhd |
The Group restaurant segment suffered losses from impairment of assets amounting to RM3.87 million and write-off of equipment, during the closure of outlets, amounting to approximately RM1.43 million, set off with reversal of impairment of RM1.32million previously provided. (Page 11 of AR).
|
|
Perak Corporation Berhad |
On 4 December 2019, Affin Investment has put Animation Theme Park Sdn Bhd (“ATP”) under receivership and has appointed Datuk Duar Tuan Kiat of Messrs Ernst & Young as receiver and manager (“R&M”) over the property plant & equipment and inventories under the terms of a debenture dated 10 July 2014 (“Debenture”) given to Affin Hwang Investment Bank Berhad. As part of receivership strategy, the R&M has ceased the operations of Movie Animation Park Studio (MAPS) on 28 January 2020. Thereafter, the R&M will proceed to conduct an offer for sale exercise to identify strategic investors for the sale of the charged assets of ATP (page 14 of Annual Report 2019 (“AR2019”)).
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|
TA Enterprise Bhd |
As at 30 June 2020, TAE recorded a significant increase of 35% in current liabilities to RM2.39 billion from RM1.77 billion as of 31 December 2019, primarily driven by increase of 30% (RM410.95 million) and 37% (RM202.62 million) in borrowings and payables to RM1.79 billion and RM544.49 million respectively. At the meantime, TAE has RM1.04 billion cash on hand.
|
|
YLI Holdings Bhd |
The Group recorded a loss after tax of RM10.115 million in FY2020 as compared to a loss after tax of RM21.742 million for FY2019 (Page 5 of the Annual Report 2020). This represents a reduction in loss of RM11.627 million or 53.47%. Considering the reduction in loss recorded in FY2020, will the Group be able to achieve a positive bottom-line result next year? If not, when is YLI expected to be profitable? |
|
SCGM Bhd |
SCGM acknowledged the negative sentiment of public towards plastic products due to its environmental impact. Moreover, public are encouraged to reduce the use of single-use plastic products F&B packaging products – a segment that SCGM heavily relied upon.
|
|
Omesti Bhd (AGM) |
The Group was appointed by Huawei Technologies Co Ltd as Authorised System Integration Partner for its Business Support Systems (BSS) (page 3 of Annual Report 2020 (“AR2020”)). To what extent will this contribute to the Group’s top and bottom line, going forward? |
|
Bintai Kinden Corporation Bhd |
BKCB’s net current liabilities stood at RM31.8 million as at 31 March 2020. With negative operating cash flow of RM21.5 million, how would BKCB satisfy the repayment obligations for borrowings, other liabilities and cost overheads which are due in the next 12 months? |
|
Solid Automotive Bhd |
‘Inventories written down’ increased significantly to RM2.6 million (2019: RM0.4 million) (Note 12, page 83 of AR2020).
|
|
Kamdar Group (M) Bhd |
Kamdar has made an impairment on investment in subsidiaries amounted to RM62.5 million in FY19 on subsidiaries namely - Pusat Membeli-Belah Kamdar Sdn Bhd, Pusat Membeli-Belah Kamdar (PG) Sdn Bhd and Kamdar (South) Sdn Bhd (page 57 of AR2019) due to lower recoverable value than the net assets value of the subsidiaries. Further to this, the Company made additional impairment on subsidiaries worth RM14.11 million in FY20 (page 88 of AR2020). What caused the lower recoverable value of the subsidiaries’ net tangible asset? |
|
LB Aluminium Bhd |
Aluminium Segment
What has the Segment achieved in terms of cost savings from the cost cutting measures? What are the areas for enhancement that the Segment has identified to improve efficiency?
|
|
QL Resources Bhd |
In relation to FamilyMart convenience store business:
Which region in Malaysia will this additional central kitchen be located? When will this additional central kitchen be in operation? What is the capital expenditure to be incurred? |
|
Computer Forms (Malaysia) Bhd |
Revenue of CFM declined 13.1% to RM30.39 million from RM34.96 million in FY19. However, it continued to be in red with net loss of RM1.9 million posted in FY20 (FY19: RM2.9 million). CFM will continue to focus on existing businesses and review the sustainability and viability of each business segment.
Given the fundamental weaknesses of the existing business, why does the Company state that it will focus on existing businesses?
How has the digital business fared? Does it have the potential to offset the declining contribution from the physical documents printing business? What is the percentage contribution of the digital business to revenue? |
|
Talam Transform Bhd |
The Group is exploring venturing and expanding into agriculture and horticultural commercial farming. The Group’s existing abundant landbanks can be monetised to create a new stream of revenue flow to cater for a rising demand for essential and secure food supplies and in turn generating new cash flow and profitability for the Group.(page 14 of Annual Report)
|
|
GPA Holdings Bhd |
For FY2020, two scheduled Board Meetings were held with full attendance of all Directors (page 22 of AR2020).
|
|
Kumpulan Fima Bhd |
KFIMA made an impairment loss of RM17.79 million on property, plant and equipment and right-of-use assets in PT Nunukan Jaya Lestari (PTNJL) after the Mahkamah Agung of Indonesia allowed the judicial review application by Menteri Agraria and Tata Ruang/Kepala Badan Pertanahan Nasional against PTNJL over a land title dispute.
Will the plantation division be able to turn around in FY21? |
|
Jasa Kita Bhd |
The Group had taken measures to increase exposure of its products and services across the board via electronic commerce and various online shopping platforms. (Page 4 of AR) What has been the Group’s experience in marketing its products and services via electronic commerce and various online shopping platforms and the amount of revenue generated henceforth? |
|
Sentoria Group Bhd |
Included in the other receivables is an amount of RM21,096,000 (30.9.2018 and 1.10.2017: Nil) due from a customer who has utilised the Company’s banking facility, granted by a licensed bank, to finance the customer’s projects which have been awarded to the Group.(page 104 of Annual Report)
|
|
Magni-Tech Industries Bhd |
Customer N, which is one of the world’s largest supplier of athletic wears, recorded quarterly loss of US$790 million in June 2020 due to the widespread closure of physical stores globally caused by COVID-19 pandemic. Customer N contributed about 90% or RM1.07 billion of Magni-Tech’s RM1.2 billion revenue in FY20.
|
|
Lingkaran Trans Kota Holdings Bhd |
For the financial year ended 31 March 2020 (“FY2020”), Litrak's toll revenue is RM498,849,000, comprising the toll collection from the highway's users and compensation claim from the Government of Malaysia. For FY2021,
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|
Esthetics International Group Bhd |
Note 11 on Receivables, deposits and prepayments disclosed that RM6.4 million in respect of trade amount due from associates is not expected to be repayable within the next 12 months. Why is this amount not payable within the Company’s credit period? When is this amount expected to be repaid? |
|
ES Ceramics Technology Bhd |
In Thailand, the factory produces mainly examination formers, surgical formers, household formers and industrial formers as well as custom made formers whereas the plant in Ipoh, Malaysia focuses on the manufacture of examination formers. (Page 7 of Annual Report – AR)
|
|
Hai-O Enterprise Bhd |
The impairment on trade and other receivables for the year increased significantly from RM250,000 to RM2million (Page 157, Annual Report).
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MSWG TEAM
Devanesan Evanson, Chief Executive Officer, ([email protected])
Linnert Hoo, Head, Research & Development, ([email protected])
Norhisam Sidek, Manager, Corporate Monitoring, ([email protected])
Lee Chee Meng, Manager, Corporate Monitoring, ([email protected])
Elaine Choo Yi Ling, Manager, Corporate Monitoring, ([email protected])
Lim Cian Yai, Manager, Corporate Monitoring, ([email protected])
Ranjit Singh, Manager, Corporate Monitoring, ([email protected])
Nor Khalidah Mohd Khalil, Executive, Corporate Monitoring, ([email protected])
DISCLOSURE OF INTERESTS
•With regard to the companies mentioned, MSWG holds a minimum number of shares in all these companies covered in this newsletter.
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