WCT’s share placement likely to be at steep discount

WCT and Bina Puri are among the more active contractors in Sabah over the past few years

KUALA LUMPUR: Property-construction company WCT Holdings’s move to place out up to 10% of its existing paid-up share capital, or approximately 125 million shares is likely to be priced below its net asset value.

PublicInvest Research had on Thursday described the move as a “dilutive exercise”. 

“With 20% of the shares crossed at RM2.50 per share less than three months ago, we are surprised by the move in placing out shares at such a steep discount though we acknowledge the above transaction was done at the shareholder level. 

“This could however mean the disposal of its remaining non-core assets could take longer than expected, in our view,” it said.

The research house noted that 60% of the gross proceeds will be used to fund some of the group’s ongoing construction projects and property development projects.

They include (i) MRT2 project; (ii) Pan Borneo Highway (iii) RAPID (iv) Paradigm Mall, Johor Bahru; (v) The Lead Residence, Klang; and (vi) The Waltz Residence, Kuala Lumpur.

PublicInvest Research explained the issue price of the placement shares may be fixed at a discount of not more than 10% to the five-day volume weighted average market price of WCT Shares immediately preceding the price-fixing date.

The placement, using an illustrative price of RM1.70 (or 9.6% discount to last closing price), is estimated to raise up to RM212.5mil and to be used to pare down debts and for working capital purposes. 

“This move comes as a surprise and seemingly values the company a little too low considering, the current controlling shareholder, Tan Sri Desmond Lim purchased his 20% stake at an average price believed to be at RM2.50 less than three months ago. 

“Furthermore, we had expected that the Group would dispose certain non-core assets to pare down its debt earlier. Our sum-of-parts derived TP remains unchanged at RM1.70 as we maintain our Neutral call for now.

“The proceeds raised will be used to pare down debts and for working capital purposes. Assuming the placement price at RM1.70 which will raise the RM212.5mil, we understand that RM80mil is earmarked to pare down debts (from 0.99 times to 0.86 times), RM130mil for working capital and RM2.5mil for placement expenses,” it said. 

PublicInvest Research said the group’s borrowings include bank overdraft, revolving credit and term loan facilities amounting to about RM1.02bil. 

The estimated interest savings based on the weighted average effective interest rate of 4.85% p.a. is approximately RM3.9mil per annnum.

Article type: metered
User access status: 3
Join our Telegram channel to get our Evening Alerts and breaking news highlights

Next In Business News

Ringgit hits 4.4 against US$, lowest since March 2020 Premium
Further recovery for SunREIT as borders reopen Premium
US plunge sends domestic shares lower Premium
Trading ideas: Country Heights, Malaysia Smelting Corp, LBS Bina Group, Sunway REIT, Cahya Mata Sarawak Premium
S.African central bank eyes digital rand to cut cross-border payment costs Premium
Oil price falls 2.5% as US refiners ramp up output, equities retreat Premium
Tesla cut from S&P 500 ESG Index, and Elon Musk tweets his fury Premium
Wall Street ends sharply lower as Target and growth stocks sink Premium
Global soy crop outlooks are aggressive, maybe too much so Premium
Amazon Web looks at developing data centres in Malaysia Premium

Others Also Read