KUALA LUMPUR: Lay Hong Bhd (fundamental: 0.45; valuation: 0.6) has proposed a private placement of up to 15.75 million new shares or 30% of the company’s enlarged share capital to third party investors, and implement a share issuance scheme (SIS) for eligible directors and employees.
The plans will help the poultry farmer comply with the public shareholding spread as required by Bursa Malaysia, but may at the same time dilute QL Resources Bhd’s (fundamental: 1.1; valuation: 1.5) stake in the firm.
As at Jan 29, 2015, QL is the second biggest shareholder of Lay Jong, with a 39% stake. The controlling shareholder of Lay Hong is the founding Yap family with over 45% stake.
According to Lay Hong’s filing with Bursa Malaysia yesterday, the private placement would help it comply with Bursa’s requirement of having at least a 25% public shareholding spread. As at Dec 31, 2014, Lay Hong’s public shareholding spread was 15.42%.
“In addition, the proposed private placement will enable Lay Hong to raise gross proceeds of up to RM48.98 million for the group’s working capital requirements … and will further strengthen the capital base of the company,” it said.
Lay Hong said these new shares will be placed out to “independent third party investors” which will be identified later. It stressed that none of its existing directors, substantial shareholders or chief executive as well as persons connected to them will be entitled to these new shares.
At the same time, Lay Hong has proposed to terminate the existing executive share option scheme, to be replaced with a new SIS of up to 15% of its issued share capital for eligible directors and employees of the group.
“The proposed SIS will be administered by a committee to be duly appointed and authorised by the board,” said Lay Hong.
It said shareholders will have to approve entitlements under the SIS for Lay Hong’s major shareholders, directors and chief executive or its holding company or persons connected to any of them.
Lay Hong said the rationale of implementing a new SIS is to “provide the eligible persons with an opportunity to have equities in the company”.
To recap, QL launched a conditional general offer for Lay Hong at RM3.50 per share in September last year, after its sole representative on Lay Hong’s board, Chia Mak Hooi, was not re-elected as a director. At the time, QL held a 26.81% stake in Lay Hong.
QL then started to accumulate Lay Hong shares and eventually exceeded the 33% shareholding threshold, thereby triggering a mandatory takeover offer for Lay Hong. With the takeover offer and open market purchases, the company managed to further build up its holdings in Lay Hong to 39%, but it still failed to wrest management control from the Yap family.
It is understood that QL’s build-up of a sizeable stake in Lay Hong has not gone down well with the founding Yap family, even before the takeover offer.
In the filing with Bursa, Lay Hong said the plans will be subject to approval from Bursa and its own shareholders. The company said these proposals will be completed in the second quarter of 2015 “barring any unforeseen circumstances”.
Lay Hong shares closed down 2.86% at RM3.40 yesterday, giving it a market capitalisation of RM172.18 million, while QL’s share price was up 0.29% to RM3.51 with a market cap of RM4.38 billion.
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This article first appeared in The Edge Financial Daily, on February 5, 2015.