KUALA LUMPUR (Feb 12): The market reacted negatively to Eastern & Oriental Bhd (E&O)’s announcement of a cash call, given the 17% decline in the property developer’s share price during the morning session to touch multi-year lows.

At 10.34am, the counter was down 18 sen or 16.5% at 91 sen, amid trades of 2.1 million shares. Earlier, the counter fell 17% to an eight-year low of 90 sen per share.

The company had yesterday proposed a cash call exercise to raise RM550.3 million via private placement and renounceable rights issue to fund its property development projects.

In a note, PublicInvest Research analyst Tan Siang Hing said the fund raising exercise was a negative surprise and had reduced its target price on E&O to RM1.00 from RM1.30 previously, to account for dilution.

“This comes as a negative surprise as we had believed earlier that the group would raise funds by disposing non-strategic assets and/or get more strategic partners for its Sri Tanjung Pinang Phase 2 development,” said Tan.

Affin Hwang Capital analyst Loong Chee Wei said the overhang from the equity issuance will dampen sentiment on the stock in the short to medium term, but the long-term prospects for E&O remain good.

“The prospects for E&O remains good with the scheduled completion of the 253-acre Seri Tanjung Pinang Phase 2A by September 2019,” he said.

E&O’s cash call involves the issuance of up to 10% of its issued share capital of 1.31 billion shares.

The renounceable rights issue will include free detachable warrants on an issue price and basis to be determined later.

Based on an illustrative price of RM1.20 per share, one rights stock for every four existing E&O stock and one warrant for every two stocks, E&O expects to raise between RM250 million and RM550.3 million.

Loong said entrepreneurs and substantial shareholders Datuk Seri Tham Ka Hon and Datuk Tee Eng Ho/Tee Eng Seng will likely subscribe for the rights issue entitlement.

Of the funds raised, as much as RM300 million will be allocated for property development and/or reclamation. Meanwhile, as much as RM200 million will be used to repay borrowings and RM48.8 million will be used as general working capital.

Among projects that E&O will fund with the amount raised is STP2, as well as the upcoming residential property projects in Kuala Lumpur such as The Conlay and The Peak.