THE market’s reaction to Eastern and Oriental Bhd ’s (E&O) cash call is to be expected. At a time of increasing uncertainty, and when the property market is seeing a slowdown, a cash call by a property developer can be unnerving for shareholders.
In E&O’s case, the massive RM550mil cash call through a private placement and rights issue is worrying because of the dilutive impact it will have on its shareholders.
MIDF Research says upon the completion of the fund-raising exercise, the share base of E&O is expected to increase by 51% to 1.98 billion shares.
In other words, if a shareholder does not participate in the cash call, the value of his holding is likely to halve post the exercise.
Meanwhile, Public Investment Bank Research, points out that the cash call is a “negative surprise”.
“We had believed earlier that E&O would raise funds by disposing of non-strategic assets or get more strategic partners for its Sri Tanjung Pinang Phase 2 (STP 2) development (pic),” it said in a report.
E&O says the reason for the cash call is finance its continued reclamation works for its STP2 project and to reduce bank borrowings.
Following the announcement, E&O issued a statement to say the firm is preparing the platform on which to embark on its next growth trajectory.