Private placements remain easy way to raise money

Total proposed private placements year-to-day stand at about RM2.5b according to Bursa Malaysia compared to RM4.1b in 2H20


INTEREST in private placements on Bursa Malaysia has been increasing in the past year, as companies utilise the avenue to raise cash especially, by those grappling with financial issues.

Total proposed private placements year-to-day stand at about RM2.57 billion according to Bursa Malaysia filings compared to RM4.14 billion in the second half of 2020 (2H20).

Areca Capital Sdn Bhd CEO Danny Wong said private placement is a cheaper and faster way for companies to raise money through the issuance of shares.

The local exchange’s relaxation rule on the activity that was implemented last year had also contributed to the uptake in the exercise among companies.

“With the relaxation rule of Bursa Malaysia, the threshold for new issuance under private placement increased to 20% of paid-up capital, from 10% previously.

“There is liquidity aplenty in the market amid low rates and easy money policy. Therefore, issuers can take advantage of quick fundraising for those who are facing financial difficulties and also those who want to seize opportunities,” he told The Malaysian Reserve (TMR) yesterday.

He added many private placements were seen in the past year and the traction is expected to continue in the months to come.

In April last year, Bursa Malaysia raised the private placement general mandate to 20% of a firm’s issued share capital from the previous 10% to assist listed issuers who are affected by the pandemic. The relaxation is an interim measure available until December 2021.

By raising the threshold, the local bourse enables issuers to raise funds efficiently to finance their businesses and support their recovery process.

According to the Securities Commission, it reported an increase of 76% in secondary issuances last year which amounted to RM8 billion.

MIDF Research strategy head Syed Muhammed Kifni Syed Kamaruddin said the rise in private placements may affect the stock market as more issued shares might depress the market price and dilute the percentage shareholding of other or general investors.

He added more private placement is expected to take place in the months to come especially among sectors that were greatly affected by the pandemic and the movement restrictions that ensued.

“We may see private placement to be more prevalent especially among sectors that are hardest hit by the movement restrictions such as aviation (airline) and hospitality (hotel).

“Other/general investors may be less willing to commit more equity capital to such businesses under the current pandemic situation,” he told TMR.

The latest activity was made by property developer Country Heights Holdings Bhd which proposed to undertake a private placement of up to 54.71 million new shares which represents 20% of the company’s existing shares.

In a filing to the local bourse on Aug 20, the group said it had assumed the placement shares are issued at an indicative issue price of RM1.07, which will amount to RM58.81 million.

The money raised will be used to repay Country Heights’ bank borrowings and finance construction costs for the Mines Wellness Suites project and College Heights Estate project, among others.

“There is no fund-raising exercise undertaken by Country Heights during the past 12 months immediately preceding the date of this announcement,” it said in its statement recently.

JAG Bhd had also proposed to undertake a private placement in June which will involve the issuance of up to 161.04 million placement shares representing not more than 30% of its existing total number of issued shares.

At an indicative issue price of 30 sen per share, the group is expected to raise RM48.31 million.

The group said the proceeds raised will be utilised for the purchase of equipment, repayment of bank borrowings, working capital and estimated expenses for the private placement.

“The proposed private placement is expected to contribute positively to the earnings of our group for the financial year ending Dec 31, 2021, and for the future years as and when the benefits of the utilisation of proceeds are realised,” it said in its filing to Bursa.

In April, Dagang NeXchange Bhd announced its plans to undertake a private placement to partly finance its proposed 60% stake acquisition in SilTerra Malaysia Sdn Bhd from Khazanah Nasional Bhd.

In its bourse filing, the company stated the proposed share placement exercise entails an issuance of up to 30% of its total number of issued shares.

Based on the indicative issue price of 72 sen per placement share, the proposed private placement is expected to raise gross proceeds of up to RM641.96 million.