KUALA LUMPUR (Apr 27): Loss-making poultry farm producer and trader D.B.E. Gurney Resources Bhd (DBE Gurney) announced a proposed par value reduction of 9 sen apiece, amendment to its memorandum of association (MA) to effect the said reduction, and the issuance of redeemable convertible notes (RCN) to raise up to RM50 million.
In a filing with Bursa Malaysia this evening, DBE Gurney (fundamental: 0.35; valuation: 0.9) said the proposals are to improve its balance sheet by setting-off the accumulated losses at the company level and the partial repayment of its total borrowings, without incurring any additional interest cost as compared to bank borrowings.
DBE Gurney said the planned par value reduction will reduce its existing shares to 1 sen apiece, from 10 sen currently, which will give rise to a credit of RM60.6 million - which will off-set the accumulated losses currently in its balance sheet.
"The elimination of the accumulated losses from the statements of financial position of the company will enhance the company's credibility with the bankers, customers, suppliers, investors and other stakeholders, and will also provide a stronger financial platform for the company's future growth," it said.
For the financial year ended Dec 31, 2014 (FY14), DBE Gurney's accumulated losses stood at RM32.12 million.
It is worth noting that on a year-to-year basis, its net loss in FY14 widened to RM10.17 million from RM512,906 in FY13, despite a 2.6% growth in revenue to RM157.08 million from RM153.02 million previously.
DBE Gurney noted that its shares have been trading below its par value of 10 sen in the past 12 months at an average price of 7 sen, which had prevented the group from raising any fresh funds via the issuance of new shares.
"Therefore, the proposed par value reduction would enable the implementation and issuance of the proposed RCN at conversion shares with reduced par value of 1 sen for each new shares," the group said.
On the proposed RCN issuance, DBE Gurney said it has signed a conditional subscription agreement with Advance Opportunities Fund and Advance Capital Partners Pte Ltd to raise up to RM50 million note in four tranches. The RCN, which carries an interest rate of 2% per year, will have a three-year tenure until 2018.
The proposed issuance is to repay bank borrowings, fund future acquisition of poultry farms, upgrade existing production facilities, construct a cold room, and for working capital, besides paying for the expenses for the proposed corporate exercises.
The issuance of the RCN is conditional upon obtaining sanction from the High Court.
It said the proposed par value reduction and proposed notes issue are not expected to have
a material effect on the earnings of the group for FY15, but said the utilisation of the proceeds from the proposed notes issue is expected to contribute positively to its earnings in the future.
Upon the proposed par value reduction and assuming a full conversion of the RCN into new DBE shares, its issued and paid-up capital can reach up to 1.86 billion shares, which may dilute its future earnings per share in upcoming financial years.
Upon full conversion of the RCN, DBE Gurney's total borrowings are expected to drop to RM3.03 million or 0.02 times from RM23.03 million or 0.41 times currently.
DGB Gurney expects to complete the corporate exercises in the second half of this year, subject to regulatory approval and shareholders' nod at an extraordinary general meeting to be convened later.
DGB Gurney has appointed Kenanga Investment Bank Bhd as the adviser, lead arranger, lead manager and facility agent for the proposals.
(Note: The Edge Research's fundamental score reflects a company's profitability and balance sheet strength, calculated based on historical numbers. The valuation score determines if a stock is attractively valued or not, also based on historical numbers. A score of 3 suggests strong fundamentals and attractive valuations)