MRCB shares tumble on news of RM2.86 billion cash call

PETALING JAYA: Shares of Malaysian Resources Corp Bhd (MRCB) fell as much as 21 sen or 12.1% yesterday after it proposed a rights issue exercise to raise up to RM2.86 billion.
At the market’s close, the stock was down 20 sen or 11.5% at RM1.54, with some 67.42 million shares changing hands, the third most actively traded counter of the day.
Hong Leong Investment Bank Research (HLIB Research) said it is not upbeat on the rights issue exercise as earnings per share will be diluted by 50% while the benefits of the National Sports Complex project (i.e. development profits) will only come in at a much later stage after the facility is completed.
The research house estimates that the rights issue will reduce MRCB’s net gearing from 76% in Q4 16 to 27% on a proforma basis, while interest savings are expected to amount to RM47 million on a full-year basis.
AmResearch said the substantially enlarged share base of MRCB may have a dilutive impact on the group’s earnings per share moving forward, which will be negative for the shareholders.
The one-for-one rights issue will entail the issuance of up to 2.86 billion shares at an indicative issue price of RM1 per rights share.

Proceeds raised from the rights issue will be used to finance the privatisation of the National Sports Complex (RM975 million), repay borrowings (RM826 million), fund property and construction projects (RM233 million) and for working capital (RM100 million).
MRCB has also proposed that its major shareholders Employees Provident Fund (33.6%) and Garpuna (16.8%) be exempted from making a mandatory offer as a result of participating in the rights issue.
AmResearch is maintaining a “buy” call on MRCB with an unchanged fair value of RM1.89, based on a 10% discount to its revalued net asset value.
Meanwhile, HLIB Research is putting MRCB “under review” pending its first quarter results, which will be released on May 29.