“E&O is a non-core business for us. Hence, there are no plans to invest further in this business, ” chief executive officer Datuk Jeffri Salim Davidson(pic) told StarBiz.
By not subscribing to the rights, this would further dilute Sime Darby’s stake in E&O to 9.2% from 11% now, as the proposed rights issue was based on one rights stock for every four E&O stocks held.
Jeffri said moving forward, Sime Darby would focus on growing its industrial, motoring and healthcare businesses.
On whether there is a time-frame to dispose of its E&O stake and other non-core assets, Jeffri said “there is no hurry.”
“We will continue to be on the lookout for the right time and opportunity to divest, as there is no immediate urgency to raise cash, given our low gearing levels, ” he said.
E&O has undertaken two fund-raising exercises recently.
In March, it completed a private placement of 130.23 million shares or a 9.1% stake of the enlarged share capital at 98 sen per share.
The new shares were subscribed by businessman Tan Sri Wan Azmi Wan Hamzah at a price tag of RM127.6mil through his vehicle Sweetwater SPV Sdn Bhd.
This private placement diluted Sime Darby’s stake in E&O to 11% from the 12% it had held previously.
After that private placement, E&O announced another fund-raising exercise under a proposed rights issue to raise at least RM123mil.
The property developer said the reason for the cash call was to reduce its debt and pay for new reclamation work at the ongoing phase two of Seri Tanjung Pinang (STP2) project in Penang.
As at the end of June, the group’s total debt stood at RM1.39bil.
Under the proposed rights issue, about 350 million new shares will be issued with one free warrant C for every rights share subscribed.
E&O has fixed the rights share at 60 sen apiece, which is a 12-sen or 16.7% discount to the E&O shares of 72 sen based on the five-day, volume-weighted average price up to Sept 18,2019.
Datuk Seri Terry Tham, who is a shareholder and executive chairman of E&O, Wan Azmi and property developer KERJAYA PROSPEK GROUP BHD have confirmed their subscription to these rights, which would see them collectively pay RM76.55mil.
In a filing with Bursa Malaysia on Oct 1, E&O said the balance of rights subscription of 76.36 million shares together with 38.18 million Warrants C, amounting up to RM45.82mil, would be raised via underwriting arrangements with AmInvestment Bank.
Shares in E&O have been under pressure since March this year when the company announced its first fund-raising exercise.
On a year-to-date basis, the counter is down 38%, trading at 66.5 sen a share yesterday.
E&O is currently working on its key development project in Penang called STP2, which is estimated to be completed in 15 to 20 years. The development of STP2 is divided into three phases – STP Phase 2A, Phase 2B and Phase 2C.
The first phase, Phase 2A, involving 253 acres of reclamation work, is expected to be completed by late this year and the maiden launch is expected to be in the second half of 2020.
Phase 2A is expected to have a gross development value (GDV) of over RM17bil, to be developed over 15 years.
Meanwhile, for Phase 2B and 2C, the initial reclamation works are projected to cost RM250mil over the next two years.
“The total reclamation cost of Phase 2B and Phase 2C is envisaged to exceed RM1bil, ” E&O had said earlier
In 2017, E&O roped in Retirement Fund Inc (KWAP) as its strategic partner for STP2A. Under the deal, KWAP took a 20% stake in STP2A and subscribed to a 5.26% stake in the listed entity for RM766mil.
For the first quarter ended June 30, E&O’s net profit plunged 87.7% to RM1.7mil from RM13.8mil a year earlier, following the completion of the development projects in STP1.
Revenue for the quarter declined by 32.7% to RM134.59mil compared to RM200mil previously.
For 2020, E&O is targeting to launch two projects in Kuala Lumpur, namely, The Conlay and The Peak with an estimated GDV of RM1bil.
“Moving forward, the group is also focused on laying the foundation for the next growth trajectory in STP2A in Penang. Barring any unforeseen circumstances, the maiden launch in STP2A is expected in the second half of 2020, ” E&O said.