This article first appeared in The Edge Financial Daily on June 2, 2017

KUALA LUMPUR: Convenient store operator 7-Eleven Malaysia Holdings Bhd has scrapped plans for a RM61.67 million rights issue of warrants to fund working capital following a lukewarm market response.

In a filing with Bursa Malaysia yesterday, 7-Eleven Malaysia said it has decided not to proceed with the exercise after taking into consideration general feedback, as well as market reaction to the proposed rights issue. “The aborting of the proposed rights issue is not expected to have any material effect on the earnings and net assets of the group,” it added.

On April 25, 7-Eleven Malaysia proposed to undertake a rights issue of new warrants at an issue price of 10 sen for each warrant, to raise up to RM61.67 million mainly for working capital purposes. The proposal entailed the issuance of up to 616.69 million warrants on the basis of one warrant for every two existing shares.The exercise price of these warrants was RM1 per warrant after taking into consideration the theoretical ex-rights price of 7-Eleven Malaysia shares of RM1.48, calculated based on the five-day volume weighted average market price up to and including April 18 of RM1.66. 

However, since the announcement, 7-Eleven Malaysia’s share price has fallen 21% from RM1.69 on April 25 to close at RM1.33 yesterday, wiping out nearly RM400 million of market value. Its market capitalisation stood at RM1.48 billion. 7-Eleven announced that its working capital requirements include payments to suppliers and operating expenses, such as rental, store utilities, insurance, store maintenance and royalties payable. The proposed rights issue would have helped reduce 7-Eleven Malaysia’s gearing to as low as 0.4 times, from 3.29 times as at Dec 31 last year. 

However, 7-Eleven Malaysia’s cash-call plan took many analysts by surprise. The analysts saw the exercise as negative as it is earnings-dilutive due to the expansion of share base.