Weighing Bintai Kinden’s cash call

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OLD-TIMERS would remember Bintai Kinden Corp Bhd, whose portfolio included mechanical and electrical engineering works for iconic developments such as the Petronas Twin Towers, the Kuala Lumpur Tower and the Kuala Lumpur International Airport. In its heyday in the early 2000s, its market capitalisation was over RM650 million but today, it stands at only RM33 million, barely 5% of its peak in 2001.

The company has been loss-making for the past three fiscal years but some trading interest returned to Bintai Kinden (fundamental: 0.35; valuation: 1.2) late last year after its 69.82%-owned subsidiary, Bintai Kindenko Pte Ltd, won multi-million dollar contracts in Singapore. Earnings for at least one of these contracts would be booked in the coming months. A sub-contract worth S$24.15 million (RM63.5 million) is slated for completion on June 9. Another sub-contract worth S$44.65 million is slated for completion on May 9, 2016.

But would this be reason enough for investors to take up Bintai Kinden’s proposed share placement and warrant-sweetened rights issue?

Bintai Kinden last Wednesday announced plans to place out up to 10% of its share base, a move that will raise RM3 million if the shares are sold at an illustrative price of 30 sen. It also proposed to raise RM3.96 million to RM20.5 million via a warrant-sweetened rights issue to bolster its working capital and pare debt, its Feb 4 statement to Bursa Malaysia read. Proceeds for the latter assume that the rights shares are issued at a par value of 20 sen and can vary depending on the final issue price and the take-up for the nine-for-10 rights issuance that come with a free warrant for each rights share.

The rights issue, which will only happen if the proposed share placement is successful, is not underwritten but will proceed even if the only taker is its major shareholder Bintai Holdings (M) Sdn Bhd, which has promised to take up in full its entitlement of 19.8 million rights shares with 19.8 million free warrants.

At a minimum issue price of 20 sen, the rights shares will raise RM3.96 million — a sum that will go to working capital, the company said. The rights issue still needs shareholder approval to proceed but the company has obtained a blanket approval from shareholders at its recent AGM to issue up to 10% of its share base for the proposed placement.

Based on the illustration provided in its Feb 4 announcement, Bintai Kinden’s gearing of 2.49 times as at March 31, 2014, will remain high at 2.37 times after the proposed private placement. Its gearing will only fall to 2.25 times if it receives minimum take-up for its rights issue and reduce to 1.68 times if it sees maximum take-up for its rights issue. Bintai Kinden’s interest-bearing borrowings stood at RM144.14 million as at March 31, 2014, but rose to RM247.1 million as at Dec 31, 2014, according to the same statement.

The stock closed at 32 sen last Thursday, about 0.68 times its net asset per share of 47 sen as at Sept 30, 2014.

If issued at par of 20 sen apiece, the rights shares would be at a substantial discount to its net asset per share but much of Bintai Kinden’s asset base consist of receivables, some of which involve long-drawn legal suits, according to notes accompanying its accounts. Receivables stood at RM300.46 million, 80.7% of its unaudited total asset of RM372.2 million as at Sept 30, 2014, while short-term borrowings stood at RM217.05 million. Cash and bank balances were RM35.26 million.

The potentially high gearing after the proposed exercises means that Bintai Kinden is not for the risk averse, even though the stock might see larger trading interest with a larger share base from the rights shares and warrants.

Investors that can stomach the risk, however, may want to also watch Singapore’s Catalist-listed Lereno Bio-Chem Ltd (fundamental: 0.00; valuation: 0.00), in which Bintai Kinden has a minority stake of 3.43%.

Bintai Kinden’s major shareholder and executive vice chairman, Ong Puay Koon, is also Lereno’s managing director and CEO. His son, Choon Lui, sits on Lereno’s board and is Bintai Kinden’s managing director and CEO. Together, they owned about 22.72% of Bintai Kinden as at July 31, 2014 and at least 28.2% of Lereno as at Oct 25, 2013.

It is also worth noting that in April 2011, Bintai Kinden proposed to sell its entire 69.82% stake in Bintai Kindenko to Lereno for RM150 million worth of new shares in the latter — a deal which was allowed to lapse by September the same year. This could prove to be good news for Bintai Kinden’s shareholders, considering Bintai Kindenko’s recent sub-contract wins in Singapore and the fact that shares of loss-making Lereno are languishing.

Interestingly, Bintai Kinden’s shares went as high as 45 sen on June 17 last year, higher than when the company announced the bagging of the contracts in Singapore about two months later. This jump in trading activity was captured in Stocks under Momentum by theedgemarkets.com and came about when Lereno was queried by the Singapore Stock Exchange (SGX).

In reply to the SGX query, Ong senior on June 9 last year said Lereno’s board “had commenced preliminary discussions with various parties in relation to the potential acquisitions of new businesses” pursuant to a restructuring but added that these discussions might or might not result in a deal. Lereno was still looking for a new core business at the time of writing.

Whether or not Bintai Kinden’s proposed cash calls are a prelude to more corporate exercises to revive its fortune, its major shareholder can potentially gain a waiver from making a mandatory general offer (MGO) should its shareholding cross the 33% trigger as a result of the proposed exercise.

Ong’s Bintai Holdings will only cross the 33% MGO trigger if it exercises its warrants after subscribing to its rights entitlement, according to its Feb 4 statement. It intends to seek a MGO waiver.

At the time of writing, Bintai Kinden had not released earnings for the quarter ended Dec 31, 2014, but the company has said the numbers will not benefit from its recent Singapore contract wins.

For the six months ended Sept 30, 2014, it booked RM11.86 million net losses on the back of a 24.6% year-on-year fall in revenue to RM178.12 million. Its core specialised mechanical and electrical engineering services segment contributed over 80% of operating revenue but was also the main source of operational losses of RM7.93 million. Its trading segment was also loss-making but the property development, investment holding as well as turnkey, infrastructure and civil and structural businesses were profitable.

It remains to be seen whether the major shareholders’ willingness to pump in more cash will improve the fortunes of the group. But first, it will need to find takers for its planned share placement.

This article first appeared in The Edge Malaysia Weekly, on February 9 - 15, 2015.