This article first appeared in The Edge Malaysia Weekly on December 27, 2021 - January 2, 2022

IT is not often that shareholders, especially minorities, favour a rights offering for capital raising. However, Sunway Bhd’s rights issue of Islamic irredeemable convertible preference shares (ICPS), which raised RM977.8 million for the diversified conglomerate, was well received despite a difficult market.

It was attractively structured with innovative terms, enabling Sunway to meet its objectives of raising maximum proceeds while mitigating the dilutive impacts.

Completed on Dec 8, 2020, it was the largest rights issue of that year.

Sunway achieved an oversubscription of the ICPS by 0.66% despite having no underwriting arrangements and challenging market conditions. RHB Investment Bank Bhd acted as the sole principal adviser for the offering.

The exercise, first proposed on May 27, 2020, saw Sunway offering 977.8 million new ICPS at an issue price of RM1, on the basis of one ICPS for every five existing shares in Sunway.

With a five-year tenure, half of the ICPS will be mandatorily converted into new Sunway shares at a price of RM1 each in the fourth year while the other half will be converted at the same price upon maturity.

Such conversion terms — mandating conversion only at two points in time and towards the latter end of the programme — were unprecedented in the market, and ultimately aimed at controlling the dilution impact.

The issue price was at a 35.9% discount to Sunway’s five-day volume-weighted average market price of RM1.56, and a 31.5% discount to the theoretical ex-rights price of RM1.46.

Notably, the ICPS, which are shariah­-compliant, have consistently traded above their issue price of RM1 since their listing, hitting a high of RM1.49 a few times in late October, and closing at RM1.42 as at Dec 22. During the same period, Sunway’s shares have risen 12.9% to RM1.66, giving the company a market capitalisation of RM8.2 billion.

As it turns out, the fundraising was also well-timed as it was done late last year, ahead of the pack and prior to a series of longer Covid-19 lockdowns this year.

Apart from repaying borrowings, the RM977.8 million that was raised from the rights issue was to be used as capital expenditure for the development of a new hospital — Sunway Medical Centre Seberang Jaya, Penang — and the expansion of its existing hospital Sunway Medical City in Selangor. It was also to fund existing property development and property investment projects.

One of the country’s largest conglomerates, Sunway has businesses in property, construction, healthcare, hospitality, education and leisure. In June, it announced that Singapore’s sovereign wealth fund, GIC Pte Ltd, would acquire a 16% stake in its healthcare arm, Sunway Healthcare Holdings Sdn Bhd, for RM750 million.

Separately, IOI Corp Bhd’s US$300 million 10-year unsecured 3.375% fixed rate notes, via its subsidiary IOI Investment (L) Bhd, deserves a notable mention.

The transaction marked the leading palm oil player’s successful return to the US-dollar bond market after a nine-year hiatus. Additionally, it was the first international bond issuance from a palm oil player in three years, since 2018.

The new notes were a drawdown under its US$1.5 billion Euro medium-term note programme.

On Oct 26, the notes were priced at US Treasury spreads of T+185 basis points, which was a 25bps tightening from the initial pricing guidance.

According to IOI Corp, the notes attracted interest from a wide array of high-quality institutional investors, with strong orders of over US$1.2 billion at its peak. The strong demand is noteworthy as it shows that IOI Corp had investor buy-in at a time many worry about sustainability issues in the palm oil industry.

That it managed to capitalise on a short favourable market window amid recent rates volatility is testament to the group’s ability to navigate a challenging environment.

The proceeds raised were to partially refinance US$600 million 4.375% notes that were due June 2022, to fund the tender offer of the new issuance and for general corporate purposes.

The liability management exercise enabled IOI to opportunistically extend its debt maturity profile and remove refinancing risks while simultaneously locking in low interest rates for the new 10-year notes.

Credit Suisse, SMBC Nikko and Standard Chartered Bank were the joint lead managers and book runners for the transaction.

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