MRCB:Postulations or Wise Counsel?

And so it seems.

Malaysian Resources Corp Bhd (MRCB) considers it “a good time” for a cash call as the group has achieved a certain scale in terms of number of projects, and needs the capital to expand further, said group managing director Shahril Ridza Ridzuan.

“We are looking at a number of deals right now involving acquisitions of land-bank in terms of the property business as well as investments in new assets,” he told StarBiz. “We are raising funds right now so that we’ll be ready to expand.”

Shahril said the acquisitions may also involve overseas assets.

In what analysts described as a surprise move, MRCB proposed a renounceable one-for-two rights issue of new RM1 shares to raise gross proceeds of up to RM566mil based on the illustrative rights price of RM1.17 per share.

The proceeds will be used to fund expansion into environmental engineering and infrastructure business, acquisition of prime land for property development, as well as for MRCB’s 51% equity investment in Nu Sentral Sdn Bhd, a joint venture between MRCB and Pelaburan Hartanah Bhd to acquire and manage a seven-storey retail mall, Nu Sentral, at KL Sentral.


“Although we were aware that MRCB was evaluating funding options for its land-bank expansion, we were taken aback by its decision to go with a rights issue as we had expected the group to opt for bonds or a share placement,” said CIMB Research.

UOB KayHian said the fundraising exercise could bolster MRCB’s chances of acquiring “prized federal land-bank”.

As RM380mil or 67% of the rights proceeds is allocated for capital expenditure (capex), the rights issue would bolster MCRB’s balance sheet and allow it to participate in the Federal Government’s plans to sell or co-develop its prized landbank.

“Recall that Budget 2010 singled out two plots of land for such purposes – 100 acres in Jalan Cochrane, near Maluri Cheras, Kuala Lumpur city centre (market rate of RM100–RM150 per sq ft) and 2,000 acres in Rubber Research Institute of Malaysia in Sg Buloh, near an industry park in Kota Damansara (market rate of RM30 per sq ft),” it said.

The Employees Provident Fund (EPF), a substantial shareholder with a 30.6% stake, has undertaken to take up its full entitlement.

In the event the EPF subscribes to excess rights shares and its shareholding exceeds the 33% trigger, the fund has confirmed that it will comply with the provisions of the Malaysian Code on Take-Overs & Mergers, 1998 whereby it will be obliged to extend a mandatory general offer (MGO).

While CIMB Research expects EPF to seek a waiver from making the MGO, UOB KayHian believes the potential general offer is likely to happen.

UOB KayHian estimates EPF’s stake would be diluted to 28.8% from 30.6% after subscribing to its portion of rights shares based on an enlarged share capital of 1.45 billion (assuming full exercise of the employees’ share option scheme).

EPF needed an additional 4.2% stake in MRCB by subscribing to the excess rights shares to trigger the 33% level, which it could easily do as the shareholdings of MRCB were fragmented, it said, but added that EPF needed to cross the 50% stake for an MGO to be successful.

One analyst said MRCB’s share price was seen as undervalued, hence the takeover possibility should not be ruled out.

Shahril, when asked, said EPF would have to decide whether to seek a waiver or go ahead with an MGO if and when the situation arose. “But as stated in the announcement, it will comply with the code,” he said.

HwangDBS Vickers Research said given that 67% of the total proceeds would be used for expansion, this implied the group was confident of securing new contracts and possibly acquiring more land-bank.

Furthermore, net gearing is estimated to fall to 0.7 time post-rights compared with 1.1 times as of the second quarter ended June 30. The larger share base after the exercise would improve liquidity, which benefited higher beta stocks like MRCB, it added.

Undervalued shares at RM1.35? Bet your bottom ringgit for EPF to subscribe for excess shares. 2009 was a great year for EPF. It wants to be involved in property stocks giving good values in the long term.

The market rumours have it that EPF will likely announce a dividend of 5% for 2009.

As for an MGO, that we have to see.