Tuesday, May 14, 2013

To Subscribe Or Not To Subscribe For MAS Rights Shares !!!


While expectations are that some local institutions would follow Khazanah’s lead in subscribing for the rights, it is worth nothing that there is a risk of more MAS shares being sold in the market post the rights issue should there be any shortfall in the free float.

Khazanah’s holdings in MAS will rise from 69.73% to 91.89% if it is the only party that subscribes for the rights issue.

While MAS has said it will attempt to rectify any short fall in the free float after the exercise to stay listed, the company says the actual course of action will depend on the prevailing market conditions at the relevant time.

The rights shares are not underwritten and based on what has been announced so far (10 May 2013), Khazanah did not promise to take up more than its own entitlement to the rights ... probably rightly so in terms of capital outlay.

It would cost Khazanah as much as rm942 million more if it were to promise to buy all the rights shares not take by other MAS shareholders – this amount would be enough to pay every minority MAS shareholder 92 sen per share to buy them out if none of them subscribes for the MAS rights and only the minimum number of rights shares is issued.

The 92 sen per share is the same amount each MAS shareholder will have to fork out to subscribe for all four of the rights shares they were entitled for every MAS shares held before the ex rights date.

MAS’ share capital will balloon from 3.34 billion shares to between 12.62 billion and 16.71 billion shares, depending on how many investors subscribe for the rights.

It remains to be seen if the EPF – which has been sold down its stake in MAS to 6.5% as at April 30 2013 on the ex rights date from 7.83% as at Nov 2012 before the rights issue was announced – will subscribe for its portion of the rights. The EPF had been supportive in previous cash calls by MAS.

The 4 for 1 rights issue to raise up to rm3.1 billion will not fail as Khazanah’s irrevocable undertaking to take up its 69.37% portion will raise the minimum rm2.13 billion for the rights issue to go through.

If only Khazanah subscribes for the rights, MAS would only have rm367 million for working capital, versus rm1.31 billion if all the rights are taken up. Of the remaining amount rm987 million goes to capital expenditure while rm777 million is to pare down debt.

As at March 2013, MAS had rn11.41 billion in debt and had approved rm6.89 billion in capex relating to aircraft purchases and other expenditure.

Market observers say MAS has enough capital to last at least two years, even if only 70% of the rights shares are taken up, considering other financial group. Rm2.2 billion is a significant capital injection ...

It is believed that there will be significant cost savings in 2013 from new aircraft and productivity improvement.

The biggest hurdle to cross, perhaps is the fact that MAS showed similar promise to turnaround in the previous two mega cash calls. In Feb 2010, MAS raised rm3.05 billion from 1 for 1 rights issue at rm1.60 per share. Three years before that in Sept 2007, MAS raised rm1.1 billion through a 1 for 2 rights issue at rm2.70 per share.


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