Shares in United Engineers, a Singapore-listed property developer, have slid more than 14% since its announcement on Tuesday night that it is planning a rights issue.
The company is expected to raise at least S$463.5 million ($369 million) from the fully underwritten deal, having set the subscription price at a 47.6% discount to Monday’s close.
Existing shareholders will have the right to buy one new share for every one existing share. This prompted Maybank Kim Eng to lower its rating on the company to “sell” from “buy”, saying “essentially, this exercise will be dilutive to current shareholders”.
Markets continue to deteriorate, with the Nikkei average losing another 6.4% yesterday, while the Hang Seng Index dropped 2.2%. However, United Engineers’ stock remains above the subscription price.
With the transaction, the company seeks to further strengthen its balance sheet and enhance the financial flexibility of the company and its subsidiaries, it said in a filing to the Singapore stock exchange late Tuesday. It added that after the completion of the group’s takeover offer for WBL Corp last month, WBL and its subsidiaries are now United Engineers’ subsidiaries. WBL is a conglomerate with key activities in automotive, property, technology and engineering, and manufacturing and distribution.
United Engineers plans to use all the net proceeds to reduce the group’s borrowings from financial institutions.
The rights issue is still subject to the approval of the company’s shareholders at an extraordinary general meeting as well as listing approval by the Singapore Exchange. No details about the timetable were available as of yesterday.
Once it gets the green light, United Engineers plans to sell at least 309.03 million rights shares, which is equal to its outstanding share capital, or as many as 326.62 million rights shares depending on whether any convertible bonds or share options are converted or exercised before the order books close.
It has set the subscription price at S$1.50 per rights share, which translates into a 47.6% discount to Monday’s close of S$2.86 and a discount of 31.2% to the theoretical ex-rights price of S$2.18. This will allow the company to raise between S$463.5 million and S$489.9 million ($369 million to $390 million).
United Engineers’ share price slumped 9.8% yesterday to S$2.40, after a 5.3% fall on Wednesday. The stock is down nearly 29% since the start of the year. Meanwhile, the Straits Times Index STI is down 1.1% year-to-date, including a 0.7% drop yesterday.
The company has appointed OCBC as manager of the rights issue and joint underwriter with HSBC and OUB.
The underwriters have agreed to underwrite the maximum issue size of 326.62 million rights shares.
The company’s shareholders, namely OCBC, Great Eastern Holdings and the Lee Group, which hold a combined 34.1% stake (or 105.4 million shares) of the company’s existing capital, have agreed to take up their entitlements in full.
United Engineers’ operations are centred in Singapore, but it does have staff in 12 countries across Asia. The company’s core businesses are engineering, construction and integrated facility management, according to the exchange’s website. Its investment properties include the UE Square, a residential and commercial development at Clemenceau Avenue.
In 2012, the United Engineers group booked revenue of S$595.7 million and net profit attributable to shareholders of S$72.1 million. The group has a property investment portfolio worth more than S$1.2 billion and shareholder’s equity of S$1.2 billion as of the end of last year.
