KUALA LUMPUR (Feb 16): Lay Hong Bhd today defended its proposed share placement of up to 15.75 million shares, equivalent to 30% of its enlarged capital, as being not “unsually large”, while serving to protect its public shareholding spread.

The poultry producer also notes a conflict of interest in having Chia Mak Hooi on its board as Chia is the executive director of QL Resources Bhd, a direct rival of Lay Hong.  

In a statement today, Lay Hong explains that the proposed share placement is an “enabling mandate” to deal with the narrowing public shareholding spread, arising from QL Resources Bhd raising its equity interest in Lay Hong.

“It just does not make sense to issue just enough to meet the current requirements and then having to repeat the whole exercise of appointing advisers, preparing and making submissions to authorities and holding general meetings at shareholders’ costs, each time the level (the public shareholding spread) falls below the requirement which may be just one week after conclusion of the exercise,” Lay Hong explained in the statement.

“We view some of the questions put up in the media recently as baseless attempts and twisting of words to paint a negative picture of ill-intent,” it said.

“We do not think there is erosion of shareholders value if all shareholders are diluted but the value of each share increases.

"Further, our current issue size is relatively small for the turnover that the Lay Hong group is churning out, meaning there is ample room to grow and we see the current interest in Lay Hong as the right opportunity,” it added.

On Feb 4, Lay Hong had proposed a private placement of up to 15.75 million new shares or 30% of the company’s enlarged share capital to third party investors, and a share issuance scheme (SIS) for eligible directors and employees.

The plans would help the poultry farmer to have at least 25% public shareholding spread as required by Bursa Malaysia, but might at the same time dilute QL’s (fundamental score: 1.10; valuation score:1.50) stake in the firm.

QL has been raising its stake in Lay Hong after Chia Mak Hooi, the executive director of QL Resources, failed to get re-elected to Lay Hong’s board in an annual general meeting (AGM) in September last year.

Soon after, QL Resources launched a conditional general offer to buy out Lay Hong at RM3.50 per share. At the time, QL Resources held a 26.81% stake in Lay Hong.

QL then started to accumulate Lay Hong shares and eventually exceeded the 33% shareholding threshold, thereby triggering a mandatory takeover offer for Lay Hong.

The takeover bid fell through when QL Resources failed to receive valid acceptances of 50% from non-interested shareholders. The biggest shareholder is the Yap family with over 45% stake.

Currently, QL remains as the second largest shareholder with 39% equity stake in Lay Hong. Meanwhile, the Yap family, which founded the poultry firm, holds over 45% stake in Lay Hong.

Referring to the Chia's recent failure to be re-elected as a director in Lay Hong, the company said:
“Perhaps it is obvious to our wise minority shareholders that if QL’s request for board representation is to protect QL Resources’ investment in Lay Hong, being a direct competitor, that would simply mean to the detriment of our minority shareholders’ interests.”

Additionally, Lay Hong said that some of the discussions and decision-making at its board would be awkward and a little complex as Lay Hong’s proprietary information and price-sensitive information had to be discussed in the presence of a direct competitor’s representative and such information could be procured so easily by a competitor.

“Growth of the Lay Hong group was therefore, possibly stifled and slowed as implementation of growth plans can be easily delayed,” it reasoned.

Lay Hong share price closed unchanged at RM3.40 today for a market capitalisation of RM172.18 million while QL Resources shares gained 1.35% to RM3.75, translating to a market capitalisation of RM4.68 billion.

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