This article first appeared in The Edge Financial Daily on November 8, 2019

KUALA LUMPUR: SYF Resources Bhd is proposing to raise up to RM85.83 million via a renounceable rights issue with free warrants to fund its existing and future property development projects. The proceeds raised will also be used to repay bank borrowings.

As at Nov 6, the principal amount of SYF’s borrowings stood at about RM76.38 million.

In a stock exchange filing, SYF said the cash call will be undertaken on the basis of one rights share with one free warrant for every two existing SYF shares held at an entitlement date to be fixed. The exercise, the group said, will involve up to 451.72 million right shares and a corresponding amount of free detachable warrants.

However, its board of directors think none of the group’s existing warrants due to expire on Dec 11 will be exercised as their exercise price is 70 sen, while the closing price of SYF shares as at Nov 6 was 20 sen. SYF shares slid half a sen lower to 19.5 sen yesterday, which gave it a market capitalisation of RM115.52 million.

So, as opposed to the RM85.83 million that could be raised in the maximum scenario, the group expects to raise RM56.28 million in the minimum scenario, where none of its treasury shares are resold prior to the exercise, and none of the outstanding ESOS options granted and existing warrants are exercised into new shares.

This is based on the issue price of 19 sen apiece for the rights shares, which represents a discount of about 4.19% to the five-day volume-weighted average market price of SYF shares up to Nov 6, which is 19.83 sen. The exercise price of the free warrants have also been fixed at 19 sen apiece.

The group said it has procured irrevocable written undertakings from its shareholders, Datuk Seri Chee Hong Leong and Insas Bhd, collectively known as the undertaking shareholders, to subscribe in full for their respective entitlements under the proposed rights issue with warrants.

Collectively, the undertaking shareholders will subscribe for 14.8% or 43.84 million of right shares based on the minimum scenario of 296.20 million right shares available for subscription. Datuk Seri Thong Kok Khee, an ex-director of SYF, has an 8.44% interest in SYF via Insas.