MRCB: Rights Serendipity

After the annoucement that the rights issue was over-subscribed,this definitely came as a big bomb! A technical under-subscription? How did it occur? Are the MRCB lawyers as well as the Investment Bank that conducted the rights issue offer,'asleep at the wheel'?

Let us read how the imbroglio happened. This is the STAR on-line report on 4 March 2010.

The Employees Provident Fund (EPF) has made a conditional takeover offer to buy all the shares in Malaysian Resources Corp Bhd (MRCB) for RM1.50 each after triggering the takeover threshold.

The exercise could see EPF pay up to RM1.36bil for MRCB if there was full acceptance from other shareholders.

The conditional offer was prompted after EPF was allocated additional shares under MRCB’s RM566mil rights issue that led to the fund’s shareholding in the developer exceed 33% to 33.78%.

The increase in EPF’s shareholding past the 33% threshold obliged the fund to conduct the takeover under the Malaysian Code on Take-Overs and Mergers, 1998.

In a statement to Bursa Malaysia yesterday, MRCB said EPF, however, intended to maintain the listed status of MRCB and would not privatise the company.

OSK Research head Chris Eng said the offer of RM1.50 a share was slightly below the brokerage’s fair value and that the offer itself was not very attractive.

“There is a lot more potential in the company which we have not factored into the fair value of the stock,’’ he said.

MRCB is talked about being a bidder for major tracks of land in the Klang Valley and the money it raised from the rights issue would go towards buying land for future development projects.

Analysts said its track record in developing KL Sentral would act as a good platform for MRCB in making its case in any bids for such land.

Sources said EPF was unable to apply for a waiver from making the takeover from the Securities Commission as it did not fulfill an important criterion, which is the condition of not trading a company’s shares in the past six months.[As such the issuing house Investment Bank should take note of this condition: They should not be buying the targeted shares within the period of 6 months if they attend to apply for a Mandatory General Offer(MGO) waiver.]

Under the Code, EPF would have to offer to shareholders of MRCB the highest price it paid to buy an MRCB share over the past six months, sources said.

The offer for MRCB represents a small 2% premium over the last traded price of the stock of RM1.47. Sources said EPF wanted to make a fair offer but did not intend to give large premiums of around 20% seen in other privatisation deals as it was not the fund’s intention to delist the company from the stock exchange.
“It does not want to take the company private and would like to see future capital appreciation of MRCB,’’ the source said.

Sources also shot down suggestions that the takeover offer was a new strategic direction for the fund where it would prefer direct control of companies.
 
Although EPF controls RHB Capital Bhd and Malaysian Building Society Bhd, it does not want to take MRCB down the same path.

Sources said even if EPF, which also owns large stakes in other developers such as IJM Corp Bhd, dramatically increases its stake in MRCB, it would not make MRCB its vehicle for property ventures.

So which way will the share price go now? It is obvious that the shareholders will not take this offer price of RM1.50 when the current current  price is RM1.46