This article first appeared in The Edge Malaysia Weekly, on December 14 - 20, 2015.

MALAYSIAN Resources Corp Bhd (MRCB) could be on its way to becoming a bumiputera company (Bumico) if a proposed private placement of 493.61 million shares, or 20% of its issued and paid-up capital, gets the nod from shareholders at an extraordinary general meeting scheduled for Dec 21.

The impact of having Bumico status could be far-reaching for MRCB.

At present, MRCB’s bumiputera shareholding is 28%, just 7% short of the 35% threshold according to Ministry of Finance (MoF) requirements. “This 7% shortfall will be addressed by the placement,” a source says.

According to people familiar with the company, MRCB already has approval in principle from the MoF to be registered as a Bumico, subject to the minimum 35% equity requirement being met. Judging by the interest generated by the placement, it seems just a matter of time before MRCB is deemed a Bumico.

“The interest to take up the placement shares has been very encouraging. Several local and foreign agencies have expressed keen interest,” the source adds.

Interested parties looking to take up the placement are said to include Kumpulan Wang Persaraan (Diperbadankan), Pelaburan Hartanah Nasional Bhd, which is linked to state-controlled unit trust outfit Permodalan Nasional Bhd, and a host of bank-backed funds and even some foreign agencies.

The source says the underlying reason for the placement is the Bumico status.

To recap, under the proposed placement, 493.61 million shares will be issued at an indicative price of RM1.24, which would bring in a minimum of RM443.07 million and a maximum of RM612.08 million.

The maximum and minimum scenario arises due to the possible conversion of 576.52 million warrants issued slightly more than two years ago and 104.95 million shares from an employee share option scheme, which could change MRCB’s share base. At present it has a total of 1.79 billion shares issued.

MRCB has revealed that about 60% of the proceeds of the placement, or between RM278.8 million and RM371.5 million, is slated for property development activities, a tad above 20% is allocated for general working capital and 14% will be used to repay borrowings.

MRCB has three substantial shareholders — the Employees Provident Fund (EPF) with a 38.37% shareholding, Gapurna Sdn Bhd holding a 16.7% stake and pilgrim fund Lembaga Tabung Haji (LTH) with 9.79% equity interest.

About 95% of the bumiputera shareholding is in the hands of Gapurna Sdn Bhd, the private vehicle of Tan Sri Mohamad Salim Fateh Din, the managing director of MRCB, and LTH.

While it is not clear how much of MRCB the new shareholders will take, Gapurna has indicated that it is looking to subscribe for up to 120 million or 24.61% of the placement shares, which will nudge its shareholding up to 19.5%.

“From what I know, MRCB is confident of breaching the 35% bumiputera equity level,” the source says.

The EPF’s shareholding could be diluted to between 23.1% and 31.9%, depending on the conversion of warrants and employee share option scheme.

While it is not certain how the EPF will react to such a dilution, the retirement fund is known to be averse to having large stakes in companies.

“There is also much debate these days on whether GLCs [government-linked companies] should participate in businesses such as construction or property development,” the spource says.

It is noteworthy that if MRCB (fundamental: 1.30; valuation: 1.40) does morph into a Bumico, it would be one of the largest bumiputera construction and development players in the country, putting it in a good position to win jobs.

MRCB should participate in open tenders as well as those meant specifically for bumiputera contractors, and more importantly, acquire bumiputera-designated land.

“There are only a handful of players that would compete in this category. There is Cahya Mata Sarawak [Bhd], Tan Sri Syed Mokhtar Albukhary’s MMC [Corp Bhd], which is highly diversified and has businesses in ports and energy as well, Ahmad Zaki Resources Bhd and a host of smallish players … which would indicate that MRCB could be a major player as a bumiputera company,” says the source.

And the timing seems perfect, with many large-scale construction jobs in the offing, such as the multibillion ringgit Kuala Lumpur-Singapore High-Speed Rail, the RM23 billion MRT2 jobs, the RM9 billion LRT3, where MRCB and George Kent (M) Bhd are the project delivery partners. Other projects include the RM3.3 billion KL118 tower, the Damansara-Shah Alam Elevated Expressway and Sg Besi-Ulu Kelang Elevated Expressway and many other large-scale jobs.

MRCB has been aggressively bidding for jobs and has won a slew of contracts. In October, the company announced three contracts: (i) to develop and construct the Kwasa Utama commercial development in a deal worth RM3.15 billion; (ii) to regenerate facilities at the National Sports Complex in Bukit Jalil, Kuala Lumpur, in a contract valued at RM1.63 billion; and (iii) Cyberjaya City Centre, which has an estimated gross development value of about RM10 billion.

In a nutshell, the concerns about dilution from the placement can be allayed as the dilutive factor does not take into consideration the new projects which MRCB may secure, which in turn could translate into higher earnings.

According to MRCB’s financial results for the nine months ended Sept 30 (9MFY2015), its engineering, construction and environment arm is its largest revenue generator, accounting for RM595.20 million or 45.43% of revenue. The segment posted RM79.39 million in pre-tax profit or 24.47% of total pre-tax profit for the nine months under review.

For its 9MFY2015, MRCB achieved a net profit of RM303.6 million on revenue of RM1.31 billion. As at end-September, MRCB had a cash balance of RM500.48 million, long-term borrowings of RM1.09 billion and short-term debt of RM913.57 million. It paid finance costs of RM134.13 million for 9MFY2015.

MRCB ended trading last Thursday at RM1.27 per share, giving it a market capitalisation of RM2.27 billion.

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.