This article first appeared in The Edge Financial Daily on May 23, 2019
Dayang Enterprise Holdings Bhd
(May 21, RM1.13)
Maintain underperform with a lower target price of RM1.05: Last week, Dayang Enterprise Holdings Bhd announced a capital-raising exercise entailing: i) a proposed rights issue, on the basis of one rights share for every 10 shares at an issue price to be determined later; and ii) a proposed private placement representing approximately 10% of the total issued share capital at an issue price to be determined later. Based on an illustrative issue price of 80 sen per share for the rights issue and RM1.14 per share for the private placement, the exercises are expected to raise up to approximately RM187 million — most of which will be used for debt repayment and sinking funds. The proposals are expected to be completed by the fourth quarter of 2019.
The proposals are undertaken in conjunction with a proposed sukuk issuance of RM682.5 million as part of Dayang’s debt restructuring scheme. Of the sukuk proceeds raised, RM365 million will be advanced to Perdana Petroleum Bhd (a 60.5%-owned listed subsidiary) for the settlement of its borrowings, with the remaining proceeds used as refinancing of Dayang group’s borrowings. In turn, Perdana has also simultaneously announced a proposed renounceable rights issue of new redeemable convertible preference shares (RCPS), intending to raise a minimum of RM445 million to be used for the repayment of Dayang’s advances.
We do not find the announcements surprising given Perdana’s involvement with the corporate debt restructuring committee of Bank Negara Malaysia, coupled with management’s repeated guidance over the past several quarters. Based on the illustrative issue prices, the proposals are expected to dilute Dayang’s share base by approximately 20%, while reducing group net borrowings by 8% to RM798 million, thus lowering net gearing to 0.6 times, from 0.8 times currently. This would result in approximately RM6.6 million interest savings per annum. At Perdana’s level, the RCPS is expected to dilute its share base by 2.3 times to 2.5 times (depending on a final issuance basis), also resulting in a massive 72% reduction in its borrowings to RM178 million, thereby lowering its net gearing to 0.2 times from 1.4 times previously. — Kenanga Research, May 21