UMW-OG rights issue on track

PETALING JAYA (The Star/ANN) - Despite UMW Oil & Gas Corp Bhd’s (UMW-OG) share price having plummeted by some 65% since it announced a massive rights issue back in January, the company is forging ahead with the exercise, says president Rohaizad Darus.

​“We believe that if shareholders are in for the long term, we will get the support, as this exercise will be good for everyone.

“In the worst-case scenario – if nobody takes up the shares – parent company Permodalan Nasional Bhd (PNB) has committed to subscribe to the entire rights issue. So, the group will still get the RM1.8bil that it needs.

“However, I do not believe that it will come to that,” he told StarBiz.

In January, PNB had given the assurance that it would subscribe to its portion of the rights issuance, estimated then at around RM750mil.
UMW-OG’s share price stood at 88 sen at the time, but had been declining since then to hit a 52-week low of 30 sen yesterday.

The company’s market capitalisation has also fallen to RM670mil, lower than the amount of cash PNB alone, as its major shareholder, will be pumping in for its portion of the rights issue.

The situation, thus, has raised the question of whether raising RM1.8bil via a rights issue is still a feasible option for the company.

On the declining share price, Rohaizad said it was only natural that the share price would move closer towards the theoretical ex-rights price (TERP) of 39.5 sen.

In May, the group told the stock exchange that PNB had indicated its support for the recapitalisation exercise, which entails the issuance of up to 6.053 billion rights shares at an issue price of 30 sen per rights share.

The issuance of the rights shares will be together with up to 1.513 billion warrants.

The exercise is on the basis of 14 rights shares for every five UMW-OG shares held by entitled shareholders, and the warrants would be issued on the basis of one warrant for every four rights shares subscribed.

It said the TERP of UMW-OG shares of 39.5 sen was based on the five-day, volume-weighted average market price up to and including April 28, 2017 of 66 sen.

The rights issue price represents a discount of 24.0% to the TERP.

The bulk of the proceeds, or RM1.5bil, from the amount raised will be put towards reducing debts, while the balance will be put towards working capital.
Rohaizad said this would lower the group’s debt level from about RM4.1bil currently to RM2.3bil, or the gearing level from 1.81 times to 0.56 times.

“The rights issue is crucial to ensure the company is able to move forward, weather the current situation and expand in the future.

“It will help lower debt, which means we will be spending less on interest payments and there will be less pressure on cash.

“Our bottom line will improve and there will be more cash for operational needs,” he said.

The rights issue was first announced as part of a larger plan that would see its parent company, UMW Holdings Bhd, exiting the oil and gas (O&G) business, which had been dragging its profits down.

The parent company had planned to exit the business through a series of corporate exercises, including a dividend in specie and a capital injection by PNB into a new enlarged O&G outfit.

UMW Holdings said it would distribute its 55.7% stake in UMW-OG to shareholders, after which, UMW-OG would take over Ekuiti Nasional Bhd’s 42.3% stake in Icon Offshore Bhd, and later acquire Orkim Sdn Bhd.

Later on May 4, the plan to acquire Icon Offshore and Orkim was called off, with UMW-OG citing capital constraints and uncertainties in the industry.
Following the termination of the deal, UMW-OG has said it expected to return to profit next year, as its drilling rigs return to full utilisation.

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