This article first appeared in The Edge Malaysia Weekly, on December 21 - 27, 2015.
ECO WORLD DEVELOPMENT GROUP BHD managed to raise a total of RM2.8 billion from the market in March and May this year, which turned it into a heavyweight in the local property development sector in just two years after its debut.
The exercise, which included share subscription by its major shareholders, a rights issue and a primary placement, was well received by the market. The rights issue was oversubscribed by 5% while the primary placement was 1.4 times covered.
It was a successful endeavour, considering the challenges faced by the local property sector this year due to affordability issues, and subdued buyer sentiment and interest in big-ticket items post the implementation of the Goods and Services Tax (GST) in April, says Maybank Investment Bank.
Upon the completion of the exercise, EcoWorld tripled its landbank to over 4,000 acres with a total gross development value in excess of RM40 billion, says CIMB Investment Bank in its submission to The Edge for the Best Fundraising (non-IPO) category.
EcoWorld offered a renounceable rights issue of 656.74 million new ordinary shares with 525.39 million free detachable warrants at a ratio of one rights share for every two shares held and four warrants for every five rights shares subscribed for. The rights shares were priced at RM1.20 apiece.
According to AmInvestment Bank, the rights issue, which raised RM788 million, improved EcoWorld’s gearing ratio to 0.49 times from 1.19 times because part of the proceeds was used to repay short-term bank borrowings.
The proceeds were also utilised to part-finance the acquisition of development rights from certain subsidiaries of Eco World Development Sdn Bhd (EWSB) and repay advances due to EWSB from Eco Macalister Development Sdn Bhd and Eco World Project Management Sdn Bhd.
The acquisition of the development rights boosted EcoWorld’s net profit by 452.9% from the year before to RM9.4 million in the third quarter ended July 31, 2015. It had also locked in sales of RM2.4 billion as at Aug 31, 2015, representing 80% of its year-end target.
AmInvestment Bank says the free warrants attached to the rights issue enabled the shareholders of EcoWorld to benefit from the future growth of the group and any potential capital appreciation arising thereof.
A shareholder who had subscribed for the rights issue at RM1.20 apiece would have made 25% in capital appreciation as EcoWorld’s stock price closed at RM1.50 last Wednesday. The rights shares were priced at a 36.5% discount to EcoWorld’s theoretical ex-rights price per share of RM1.89.
After the completion of the rights issuance, EcoWorld placed out 394 million shares at RM1.62 each. The placement, which raised RM638.4 million, further lowered EcoWorld’s gearing to 0.36 times, according to Maybank IB. The exercise also improved the liquidity of the stock, says CIMB Investment Bank.
EcoWorld’s market capitalisation almost tripled to RM4 billion from just over RM1 billion in April 2014 following the exercise and enabled it to establish a presence in major property markets in Malaysia, for example, the Klang Valley, Johor and Penang.
Maybank IB, CIMB IB and AmInvestment Bank were the joint principal advisers and underwriters of the rights issue.
CIMB IB acted as joint principal adviser, joint global coordinator, joint bookrunner, joint managing underwriter and joint underwriter for the share subscription, rights issue and private placement.
“The transaction is unique and innovative as it is in substance the formation of a world-class property development company and its IPO simultaneously, that is, an IPO of a company with no established track record,” says CIMB IB.
Save by subscribing to us for your print and/or digital copy.
P/S: The Edge is also available on Apple's AppStore and Androids' Google Play.