MRCB:Knee-jerk Reaction to its Rights

The market reacted on hearing the proposed rights issue of Malaysian Resources Corporation Berhad (MRCB). By the day's close,it lost a staggering 7 sen, sliding from RM1.39 to RM1.32. This is a shaving of 5.04% of its market price!

Asking money in these times is such a No No. Perhaps,MRCB knows more than what the market does and it sees a market fund raising in this time window as most appropriate and the best way to move the company forward rather than resort to bank loans.According to MRCB, this rights issue will be utilized to fund future business expansion in property and infrastructure development.

MRCB proposes to sell RM566mil rights shares to its shareholders. Currently,the Employees Provident Fund (EPF), the company’s substantial shareholder, has provided a written irrevocable undertaking to subscribe in full the portion allocated to the fund. EPF holds about 30.6% equity stake in MRCB. This is good news as the new shares will be locked up by EPF as long term investment.
The basis for the proposed rights shares, as well as issue price had not been fixed at this juncture, as the “board wishes to have more flexibility in respect of pricing” in view of recent market condition, and the interest of MRCB and its shareholders, the company said.[What does it mean? They expect the price of MRCB to climb higher to ensure good returns to loyal shareholders? The bigger difference between the rights price and the market price must be the desire here.]
The maximum amount to be raised was based on an assumption that the rights shares would be sold at RM1.172 each on the basis of one rights share for every two MRCB shares held.[So, all these numbers are speculative at best!]

The actual amount to be raised would be determined upon finalisation of the proposed rights shares issue.

“Underwriting arrangements will be made by the company for the remaining portion of the rights shares for which no irrevocable undertaking to subscribe has been obtained from the other MRCB shareholders as of now.

The company said underwriting arrangements were expected to be in place prior to the implementation of the proposed rights shares issuance.

Of the amount to be raised, RM85mil would be allocated for equity investment in Nu Sentral Sdn Bhd (NSSB).

NSSB is a 51:49 joint-venture company between MRCB and Pelaburan Hartanah Bhd that was set up to manage a seven-storey retail mall, Nu Sentral, in the Kuala Lumpur Sentral development area.

The mall is currently under development and is targeted for completion in 2012.

To date, MRCB has invested RM38mil in Nu Sentral.

The bulk of the gross proceeds, RM380mil is earmarked for future business investments and expansion of MRCB’s principal activities.

MRCB said the proposed rights issue would allow the company to raise fresh funds without incurring interest expenses or having to service principal repayments.

It would also provide opportunity for entitled shareholders to buy new MRCB shares at a discount to market price. [ Ah Ha! Is this a catch?]

Numbers-wise, the RM558.1m net proceeds will reduce MRCB’s net debt and gearing of RM714.2m and 1.1x as at 30 Jun 09 to RM156.1m and 0.13x. However, the new shares will dilute MRCB’s FY12/10 EPS by 12% from 8sen to 7.1sen.

The fund raising exercise is targeted for completion in the first quarter of next year.

There are speculative elements in MRCB. One of these is that part of the rights issue will be to purchase some choice federal land for commercial development. The rumour mill has it that MRCB and its parent EPF have been given the green light by the Government to acquire and develop two prime federal land parcels in KL, namely: (1) 150 acres in Jalan Cochrane near the city centre; and (2)20-30 acres in Jalan Ampang Hilir near the Jalan U-Thant area. It has been suggested that this federal land deal could enhance MRCB’s valuation by RM624m or 69 sen per share based
on certain assumptions.

The indicative fair value is raised by 68% from RM1.02 to RM1.71, having reflected the potential massive 69sen/share enhancement from the prime federal land in KL. Many parties are recommending MRCB from under-performing to trading buy.

On a personal level, I have taken a tour of this extensive project. Believe me, when it is fully operational, it will have the biggest car park in the Klang Valley and will anytime rival the likes of Mid-Valley City and KLCC!

Banking on a Casino

Lim Kok Thay provided some comforting news during the signing of the RM1.6 billion Resorts World Ltd. public debt securities yeterday. He informed that Resorts world Sentosa Casino will be ready for launch in time for Chinese New Year 2010.

As such all traded units on the group moved higher today. Genting Berhad shares gained 0.98 per cent to RM7.22 ringgit a share on trading volume of 1.69 million shares while Genting Malaysia, which houses the group’s Malaysian casino and leisure business, added 1.5 per cent on volume of 3.47 million shares.

Meanwhile on the other side of the Causeway, Genting’s Singapore unit, Genting Singapore's share price edged up 2.86%

Said Kok Thay,"A January opening will ensure that “Resort World Sentosa can fully capture holiday-makers during next year’s Chinese New Year festivities”.

Resorts World Sentosa is expected to be one of the group’s key earnings drivers in the future.

Corporate Vision-The View from Below

Ever wonder why the personnel at the lower rungs of the pecking order do not subscribe to the vision of the bosses?

Here's why!

Malaysia: Slumpy September

Looks like the economic pain will last a little bit longer.

The Ministry of International Trade has just announced that Malaysia's exports, the mainstay of the economy, slumped 24.2 percent in September from a year ago.

It said in a statement that exports fell to RM47.24 billion (US$13.8 billion) year-on-year while imports fell 20.2 percent to RM37.97 billion, producing a trade surplus of RM9.27 billion.

So, aren't we over-dependent on the export model?

Is it TIME to Fly Again?

Having built a shoulder price at the 30 sen level for about close to 3 months, Time started moving. It overshot into the 40 sen territory last Friday (30 October 2009). On Monday it crossed the 50 sen mark before falling off back to 44 sen yesterday. Today it went up 7 sen again to 51 sen.

So what is this obsession and frenzy with TIME?

Could it be just this following announcement by TIME Engineering made at the end of trading today that it will merely exit (uplifted from) the Practice Note (PN)17 status tomorrow (5 November 2009) as its regularization plan has been completed?

But then, wasn't this obvious to the seasoned stock market player?

The huge volume of shares transacted must mean more than that.

What is it then? Speculative fever? If so, will it fly like a phoenix like SILK and LITYAN after their successful restructurings?

That is the RM64,000 question.

Only TIME will tell.

Mortgage loans : Pending Rate Pains

Lending rates are expected to rise in the near term.

So those who has taken mortgage loans at 'friendly' rates must ready themselves to pay more very soon. You now have to back-pay the 'benefits' you were offered in the past in terms of lower interest rates.[Talk about an Indian Giver!]

The whole property and banking sector are anticipating this raise increase. Banks particularly are positioning themselves for a gradual increase in the rates for their long-term loans.

The monthly statistical bulletin released by Bank Negara for September showed that average lending rate (ALR) was 4.91% compared with 4.9% in August and 4.96% in July. The average base lending rate (BLR) remained unchanged at 5.51% as at Oct 15.

According to UOB Kay Hian Research’s latest update, one of the first loan segments to be impacted would be mortgages. The report said that financing for the purchase of residential properties, which comprise 27% of total loans in the banking system, would likely slow down due to the re-introduction of real property gains tax as part of the measures under Budget 2010.

Mortgage growth would also take a temporary adjustment due to a rise in effective lending rates as banks lowered their mortgage spreads, the research house added.

“Our market survey shows that mortgage spread has been reduced from the previous BLR minus 2%-2.3% to BLR minus 1.6%-1.9%,” the report said.

The rate increase was expected to mitigate the slower loans volume growth, the research house added.

“In this scenario, Public Bank would benefit the most from its strong loans growth supported by its strong branding and lower cost of funding,” the report said.[What about the others?]

An analyst with another brokerage said he had heard reports of the rise in effective rates recently but declined to comment further. Banks, when contacted, declined comment on this matter.

Banking data for September continued to show strong credit demand from the household sector, leading to total loans growth of 7.2%.

Loan applications in the household sector amounted to RM23.2bil in September, compared with monthly average of RM22.8bil in the preceding eight months to August.

UOB Kay Hian Research noted that robust approvals in the six months to Sept 30 would sustain strong loans growth in the fourth quarter of this year and the first quarter of 2010.

“However, potential slower property sales and credit card demand due to the new budget measures would likely lead to slower loans growth in the second half of 2010,” the report said.

The research house, however, maintains its “overweight” call for the banks as slower growth would be mitigated by the increase in effective lending rate.

I am wondering why this “overweight” call?

Isn't it possible that the volume of potential new mortgages may shrink to such an extent that the increase in effective lending rate may just not be enough to off set this shortage?

A Horizon of Gray Clouds for 2009

This is the latest BERNAMA Report on the Malaysian economy and projection for 2010. Are we still looking for that silver lining as gray clouds are still predicted by the World Bank?

This is the Report dated Nov 4.

Malaysia's near-term outlook shows a slow process of recovery, with real GDP projected to contract 2.3 per cent this year before growing by 4.1 per cent next year, the World Bank said in its latest update.

In its half-yearly assessment of the economic health of East Asia and Pacific region released today, it said the revised projection showed lower growth compared to -1.0 forecast in April.

It said consumption and fixed investment growth would remain relatively subdued due to uncertainties on the global outlook, efforts of fiscal consolidation and still low levels of capacity utilisation.

The turnaround in the inventory cycle is expected to be the main growth driver, it said, adding that import growth would continue to outpace export growth in the coming quarters, resulting in a smaller trade surplus.

The current account balance is expected to decline to 12.3 per cent of the GDP this year and further to 12.1 per cent next year.

The update titled "Transforming the Rebound into Recovery" said large and timely fiscal stimulus spending in most East Asian and Pacific countries led by China and South Korea, along with a powerful inventory restocking process now under way, have driven the rebound in the region and contributed significantly to confidence in a global pick-up.

Developments in the region remain strongly influenced by China as the projected GDP increase this year will offset three quarters of decline in the GDP of the United States, the Eurozone and Japan.

With the projected 8.4 per cent growth in China this year and the country’s domestic demand racing ahead global demand, countries exporting consumer durables, electronic components and raw materials to China have felt the positive flow-on effects.

As a result, the World Bank is projecting 6.7 per cent growth this year for developing East Asia and the Pacific and 7.8 per cent next year.

Though Indonesia and Vietnam were performing well, East Asia, excluding China, is expected to grow at around one per cent this year. More slowly than South Asia, Middle East and North Africa and only slightly stronger than Sub-Saharan Africa.
Some countries remain hard hit, with the GDP of Cambodia, Malaysia and Thailand contracting and barely growing in Mongolia and some of the Pacific Islands, the report said.

The World Bank said Thailand’s economy is expected to shrink by 2.7 per cent this year before expanding by about 3.5 per cent next year if political stability continues in the country.

Crystal balling continues to see a slow gradual return of the Malaysian economy this year, with GDP figures still lurking in negative territory. 2010 sees greater promise.

So are are you betting on the stock market? Look for some good stocks, buy them and wait. I do not think you would lose.