KUALA LUMPUR (Aug 10): A total of 697.85 million Dagang NeXchange Bhd (DNeX) warrants, which expired on July 31, have been converted into ordinary shares at the exercise price of 50 sen, the company's filings showed.

The high number of warrant conversions has enabled DNeX to raise RM348 million cash.

The fresh fund will be timely for DNeX to finance its acquisition spree.

It is estimated that DNeX needs RM448.8 million cash plus issue of 1.2 billion new shares to settle the acquisition of an additional 60% stake in North Sea O&G production outfit Ping Petroleum Bhd and the takeover of wafer foundry SilTerra Malaysia Sdn Bhd together with Beijing Integrated Circuit Advanced Manufacturing and High-End Equipment Equity Investment Fund Centre (CGP Fund).

On the flip side, existing shareholders will suffer shareholding dilution as the large block of 697.85 million shares is equivalent to 22.6% of its enlarged share capital. With the warrant conversions, DNeX's share capital has ballooned to 3.086 billion shares from 1.76 billion a year ago.

DNeX's largest shareholder Arcadia Acres Sdn Bhd's stake, which holds 360 million shares, has been diluted to 11.68% from 15.1% before the warrant conversion. Its shareholding, the investment vehicle of former director Zainal Abidin Abd Jalil, was at 20.48% in March last year.

Taiwan's Hon Hai Precision Industry Co Ltd, the main assembler of Apple Inc's iPhones, bought 120 million shares or a 5.03% stake in DNeX for RM108 million via its subsidiary Foxconn Singapore Pte Ltd two months ago. Its stake has been diluted to 3.89%.

At the time of writing, there was no filing on the emergence of any new shareholder as yet. According to the company's annual report 2019, there was no major warrant holder as at March 2020.

Thus, investors will be keen to know whether DNeX will see any new major shareholder soon, given that a large chunk of derivatives had been converted into shares.

Furthermore, the loss-making SilTerra Malaysia, in which DNeX holds a 60% stake, appears to be a prized asset during the current semiconductor boom.

DNeX's share price has performed well this year and that made warrant conversion profitable.

The stock climbed to a peak of RM1.05 in March. Since then it has retreated to hover in the range of between 70 sen and 85 sen. It closed at 81.5 on Monday, up 262% year to date from 22.5 sen at end-2020.

According to its annual report, DNeX issued 711.4 million warrants in August 2016, each of which is convertible into one ordinary share at a conversion price of 50 sen.

The warrants were issued as part of a rights issue in 2016 which raised RM97.7 million to part-fund its acquisition of general industries equipment provider OGPC Group. At the time, DNeX shares were hovering at around 20 sen.

Based the-back-of-an-envelope calculation, a shareholder who converted 100,000 DNeX warrants would have made RM30,000, assuming he sold the shares on the open market at 80 sen per share.

Assuming an investor bought 100,000 DNeX warrants at the last traded price of 16 sen, he would make RM14,000 should he sell all shares at 80 sen — a return of 21.2%.