KUALA LUMPUR: SAAG Consolidated (M) Bhd has proposed a massive restructuring that will probably see the biggest number of warrants being issued on Bursa Malaysia for debt settlement and enormous shareholding dilution among existing stakeholders.
SAAG’s debt restructuring proposal, which includes a restricted issue of new shares and a cash call, aims to repay the company’s RM709.3 million bank borrowings and to raise fresh capital to kickstart the power plant construction project in Bangladesh.
The proposed scheme may also pave the way for the entry of new substantial shareholders while the existing stakeholders are expected to suffer from shareholding dilution enormously.
Under the proposed restructuring which was unveiled last Monday, loss-making SAAG will issue one of the largest number of warrants by a listed company — between 1.59 billion and 2.19 billion, or up to 33% of its enlarged share capital.
Some 1.38 billion warrants will be issued to SAAG’s creditors, namely AmBank (M) Bhd and Exim Bank Malaysia, as part of the debt settlement scheme. As at Sept 30, 2011, the oil and gas firm had a total of RM709.3 million in outstanding loans owed to the two banks, according to an announcement to Bursa Malaysia.
SAAG will be possibly among the first listed entity to pay off its creditors by issuing warrants, rather than shares as is usually the case in debt-to-equity swap exercises.
To raise fresh capital, the company’s board has proposed a restricted issue of RM100 million worth of new shares of 10 sen each to new investors at an issue price to be determined later. The restricted issue comes with free warrants on the basis of one free warrant for every five restricted issue shares.SAAG’s share price closed at seven sen last Friday.
Assuming this chunk of shares is priced at 10 sen per unit, SAAG will have to issue one billion new shares to raise RM100 million, which is equivalent to nearly half of the company’s existing share capital of 2.17 billion units.
In addition, SAAG’s board intends to have a rights issue of up to 3.035 billion new shares in SAAG at an issue price of 10 sen each on the basis of seven rights shares for every five existing shares. The number of shares to be issued is nearly 40% of SAAG’s existing share capital.
The board has sweetened the cash call by offering free warrants on the basis of one warrant for every five rights shares subscribed. Some 607.18 million free detachable warrants will be issued.
All in, SAAG will issue a total of 2.187 billion warrants under the proposed exercise.
The number of warrants issued for the entire exercise will range between 1.59 billion and 2.19 billion. These will account for 26% to 33% of SAAG’s enlarged capital base of between 4.81 billion and 8.39 billion shares before Esos conversion.
Meanwhile, the company’s gearing ratio will be reduced to 0.981 times from 2.085 times as at Dec 31, 2010.
Will the proposal sell?
The massive restructuring exercise has not only raised many eyebrows for the huge number of warrants to be issued, but also questions on whether the proposal would eventually put SAAG on stronger financial footing and improve its earnings prospects.
Analysts say the most interesting feature of the debt-restructuring exercise is that the loan creditors will be issued some 1.38 billion warrants, rather than shares, and SAAG will attempt to find buyers for these warrants on behalf of the creditors.
Thus, the success of the debt-restructuring scheme is largely dependent on whether SAAG will be able to find takers for that over one billon units of warrants considering the company has been in the red since FY09 ended Dec 31.
Depending on wo these new shares and warrants are placed out to, the company could also see the emergence of new substantial shareholders.
For 9MFY11 ended Sept 30, the company incurred a net loss of RM47.6 million, or 2.25 sen per share, compared with RM20.4 million, or 1.13 sen per share, in the previous corresponding period. Revenue halved to RM39.5 million from RM79.5 million.
The company’s net loss swelled to RM35.7 million for FY10 from RM9.5 million the year before, despite higher revenue of RM160.5 million against RM110.6 million previously.
SAAG’s renounceable rights issue and restricted issue of new share are expected to raise as much as RM403.6 million fresh fund.
Part of the new capital raised will be utilised as financial assistance to Garisan Etika Bangladesh (Pvt) Ltd (GEB) to start its power plant project in Bangladesh.
In December 2009, SAAG had secured a contract from GEB for the design, supply, construction, installation, testing, commissioning, reliability run and completion of 6x6MW diesel generator power plant and 2x36MW combined cycle power plant at the Adamjee Export Processing Zone, Bangladesh at a contract sum of US$120 million (RM364.8 million).
In the announcement dated Dec 4, 2009, SAAG had said then the project was to be completed by 1Q2011.
Under the latest proposed exercise, SAAG said it would provide financial assistance to GEB, in which the former intends to acquire a 36% equity interest, by way of advances of up to RM170 million and by way of a corporate guarantee for US$72 million.
“The Proposed Provision of Financial Assistance will enable SAAG to enter into Bangladesh power industry where there is a demand for power plants. In addition, SAAG will also be able to monetise its assets by fully deploying its six generator sets presently being idle for nearly three years,” said SAAG in the announcement.
It added that the project was expected to commence in the third quarter this year.
It is apparent the demand for electricity in a highly populated developing country like Bangladesh is surging. But shareholders will probably be asking why there was a delay in the project for more than two years? And is the project’s commencement dependent on teh success of SAAG’s own restructuring scheme?
This article appeared in The Edge Financial Daily, February 20, 2012.
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