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Wednesday, September 10, 2014

‘More value in I-Berhad after corporate exercise’

Source: http://www.nst.com.my/node/31671

INVESTORS may see more value in I-Berhad after the property developer’s series of corporate exercises, including a share split, analysts said.

JF Apex Securities Bhd expects investors to eagerly participate in the company’s upcoming corporate exercise.

In December last year, I-Berhad announced a string of exercises comprising a share split, a rights issue with warrants, a bonus issue, an offer for sale of irredeemable convertible unsecured loan stock (ICULS) and redeemable convertible unsecured loan stock (RCULS) to fund its property development expenditure, as well as for working capital and repayment of land costs.

The entitlement for the rights issue with free warrants and the offer for sale of its ICULS are scheduled to go “ex” today.

“Based on our analysis on the upcoming entitlement of the rights issuance and ICULS, we note that there could be a potential arbitrage opportunity should one own I-Berhad shares before the entitlement goes ‘ex’ due to the steep discount of its rights and ICULS offered for sale as compared to market price,” Kenanga Research said in a note.

It noted that in reality the market may adjust the mother share price on its own to take into account the dilution effects of the ICULS issuance.

“So the total gains could be lower if
I-Berhad’s share price, post-entitlement of rights/ICULS, goes lower than RM1.45. In fact, there are zero total returns for all three of our scenarios if I-Berhad’s post rights/ICULS share price drops to RM1.09,” it said.

JF Apex advised investors to “hold” the stock and subscribe for the corporate exercise with ex-date today.

“We believe the minority shareholders shall benefit from the subscription of both rights issue and ICULS as the rights issue price (52 per cent discount to the theoretical ex-rights price of RM1.45 based on share price of RM2.41) and ICULS offer price (47 per cent discount to the theoretical ICULS price of RM0.94) are at steep discount.”

JF Apex said investors could gain from the exercise by finally owning 2,700 ordinary shares, 300 warrants and 5,000 ICULS (after bonus) with total intrinsic value worth RM8,015 with initial investment of 1,000 ordinary shares, and entitlement of 1,250 rights shares and 5,000 ICULS with total costs of RM5,772.50.

“Thus, the corporate exercise shall reward shareholders with unrealised return on investment of 39 per cent based on our assumptions for the calculations of theoretical ex-all price, theoretical warrant and ICULS prices.”

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