Pharmaniaga submits new regularisation plan to raise proceeds up to RM655m


In a move to fortify its financial position and make a decisive exit from Practice Note 17 (PN17) classification, Pharmaniaga Bhd, has outlined a comprehensive plan involving a capital reduction, a rights issue with warrants, and a private placement with the potential to raise up to RM654.6 million in proceeds.

The linchpin of Pharmaniaga’s strategy is the proposed capital reduction, a measure aimed at addressing accumulated losses within the group.

The company plans to cancel approximately RM180 million of issued share capital, lost and/or unrepresented by available assets.

In conjunction with the capital reduction, Pharmaniaga is set to initiate a rights Issue with warrants.

The proposed entitlement basis is 4 rights shares for every five Pharmaniaga shares held, along with one warrant for every one rights share.

The indicative issue price of 30 sen per rights share and exercise price of 40 sen per warrant suggest a minimum scenario involving the issuance of 1,152,983,621 rights shares and 1,152,983,621 warrants, raising gross proceeds of RM345.9 million.

The maximum scenario considers the conversion of outstanding options into Pharmaniaga shares, resulting in the issuance of up to 1,182,038,540 rights shares and 1,182,038,540 warrants, raising gross proceeds of up to RM354.6 million.

Running parallel to the rights issue, Pharmaniaga is proposing a private placement, aiming to issue up to 714,285,715 placement shares at an indicative issue price of 42 sen per placement share.

This move is expected to raise gross proceeds of up to RM300 million.

The placement shares will be placed with third-party investors meeting specific regulatory criteria, excluding directors, major shareholders, chief executives, and nominees unless the ultimate beneficiaries are disclosed.

Pharmaniaga has provided a detailed breakdown of the utilisation of the expected proceeds, amounting to up to RM654.6 million.

This includes part repayment of existing borrowing commitments, working capital, business expansion, and defraying estimated expenses related to the proposed regularisation plan.

Notably, part repayment of existing borrowings is expected to result in interest savings of approximately RM12.4 million per annum.

The rationale behind Pharmaniaga’s comprehensive plan is to overcome financial challenges, improve its cash flow position, and achieve a return to profitability.

“The successful implementation of the Proposed Regularisation Plan will significantly enhance the company’s financial condition, contributing to the regularisation of Pharmaniaga’s PN17 status,”

While the proposed regularisation plan is not expected to have an immediate material effect on the group’s earnings for the current financial year, it sets the stage for future growth and improved financial performance.

Pharmaniaga acknowledges the short-term dilution in earnings per share (EPS) for the financial year ending December 31, 2024 but underscores that the plan’s benefits are expected to contribute positively to consolidated earnings in the ensuing financial years.

The success of the proposed regularisation plan hinges on obtaining various approvals, including those from Bursa Securities, shareholders of Pharmaniaga, and the High Court of Malaya for the capital reduction.

Pharmaniaga has provided a tentative implementation timeline, foreseeing submission to Bursa Securities in the first quarter of 2024, with subsequent milestones leading to full implementation by the third quarter of the same year.

MIDF Investment is the principal adviser of the plans.

In a separate announcement, Pharmaniaga reported a widened net loss of RM49.3 million in the third quarter ended September 30, 2023 (Q323) compared to RM13.9 million in the same period last year.

The lower revenue of RM885.5 million, down from RM894.9 million, was attributed to a significant 33.4% decrease in non-concession business sales due to losing a tender for a blood cancer product.

Despite this, improved performances in the private market and Indonesia operations partially offset the impact.

In the previous quarter, Pharmaniaga said it conducted a comprehensive review of its position in all business segments, aiming to confront and address every challenge effectively.

As a result of this assessment, the company has decided to take a cautious step by incurring a total impairment of approximately RM167 million (net of tax) during the Q323.

Out of this amount, RM121 million is attributed to adjustments related to the prior year.

For the first nine months of the year, Pharmaniaga’s net loss was RM44.7 million, contrasting with a net profit of RM14.5 million in the previous year, with revenue remaining flat at RM2.61 billion.

The company said it is actively reassessing its operations, focusing on fiscal discipline, restructuring non-performing businesses, optimising business activities, and implementing cost management strategies to address its Practice Note 17 (PN17) classification.