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.

Wall Street: On a Roll!

What is happening at Wall Street?

There are just too many analysts. That is my conclusion. Today, they get together and read the data one way;then the next they read the data differently. So the Dow yoyoed up and yoyoed down.

So what do you make of the last two out of three sessions of Wall Street? It was up ,up, up and away.

New York, Monday, 9th November saw the Dow Jones industrial average stormed to its highest level in more than a year.A falling dollar boosted prices for gold, oil and other commodities.

Stocks also jumped as investors grew more confident that governments around the world will keep interest rates low to help the global economy.

Energy and materials stocks led the market.

The major indexes rose 2 percent and the Dow jumped 200 points for the second time in three days, reaching its highest level in 13 months.

The advance was further proof that investors, at least for now, aren't troubled by the unemployment rate that has now passed 10 percent.

News that the Group of 20 countries will keep economic stimulus measures in place signaled to investors that rates will remain low.

With U.S. rates near zero, the G-20 news lessened demand for the dollar.

Even as investors are waiting for more signs that the economy is recovering, they've been focusing on the dollar when they make buy and sell decisions.

Investors around the world see the dollar as weaker than other currencies, and so they're using it for what's known as "carry trade," to finance purchases of investments in other countries.

That trend takes the dollar down further when those purchases are made.

But some analysts are questioning investors' stock moves given the still-weak economy, and warn that stocks and other investments could suffer big losses if the dollar were to turn higher.

"It feels like it's on fumes," said Sean Simko, head of fixed income management at SEI Investments in Oaks, Pa., referring to the market's advance.

"Although fundamentals are catching up, they're not caught up."

The market wasn't fazed Friday by the government's report that the nation's unemployment rate last month rose to 10.2 percent, the first double-digit jobless reading in 26 years.

Even though there are still concerns that consumers either unemployed or worried about losing their jobs aren't likely to spend freely, investors took the report as another sign that interest rates will stay low.

Simko said the dollar's drop and the current surge in stocks and commodities are making it hard for investors to get a clear picture of how fast the economy is rebounding.

Still, many investors like a weaker dollar because it helps U.S. exporters by making their goods cheaper to overseas buyers and giving the companies a boost when they convert profits from abroad to dollars.

The ICE Futures U.S. dollar index, which measures the greenback against a basket of foreign currencies, fell to its lowest level in 15 months.

The dollar rose last year and early this year but the index has been sliding for the past eight months since major stock indicators bounced off 12-year lows.

Commodities prices, meanwhile, tend to rise when the dollar is down, so gold topped $1,100 an ounce.

Crude oil rose $2 to settle at $79.43 per barrel on the New York Mercantile Exchange, helped in part by Tropical Storm Ida, which threatened the Gulf of Mexico.

Energy and materials stocks rose along with commodities prices, and investors' enthusiasm for those stocks spilled over to other industries.

Brian Battle, vice president of trading at Performance Trust Capital Partners in Chicago, said the strength of the carry trade is giving an artificial lift to a range of assets, including stocks.

"There's cheap money that's going to be pumping its way into the system," he said.

"That money is finding a home in the currency and commodity markets."

The Dow rose 203.52, or 2 percent, to 10,226.94, its highest finish since Oct. 3, 2008.

The Dow's gain of 455 points, or 4.7 percent, since Wednesday is its biggest four-day climb since July.

The index rose as high as 10,228.23, topping its previous 12-month trading high of 10,119.46 set last month.

The broader Standard & Poor's 500 index rose 23.78, or 2.2 percent, to 1,093.08, its sixth straight advance.

The Nasdaq composite index rose 41.62, or 2 percent, to 2,154.06.

Again, you can interpret the scenario as you like. Are we walking on eggs?