SINGAPORE (Aug 23): Property developer Chip Eng Seng is proposing to undertake a renounceable underwritten rights issue to raise some $98.7 million for its expansion plans.
The group plans to sell a total 156.5 million rights shares at an issue price of 63 cents each. Shareholders will be entitled to subscribe to one rights share for every four shares they own.
The issue price for the rights shares is 7.35% lower than the closing price of 68 cents on Thursday and 5.97% lower than the theoretical ex-rights price of 67 cents, assuming the completion of the rights issue, calculated based on the Aug 22 closing price.
In a Thursday night filing, Chip Eng Seng says most of the net proceeds of $96.3 million will be used to finance the expansion of its property development business in Singapore and overseas, as well as to fund possible investments and acquisitions in the education segment of its business, which it is diversify into.
Chip Eng Seng group chairman Celine Tang and her husband Gordon Tang, as well as group CEO Raymond Chia Lee Meng, have given irrevocable undertakings to subscribe for their portion of shares, which make up 31.51% of the total number of rights shares.
The Tangs have been granted a waiver by the Securities Industry Council of Singapore to make a mandatory general offer should their stake in the group rise above 30% after the rights issue.
Chip Eng Seng says it had considered other fundraising options, including further bank borrowings and debt instruments from financial institutions or debt issuances under its $750 million Multicurrency Debt Issuance Programme established in 2013, but decided on the rights issue.
This was because its net debt-to-equity ratio was already about 1.8 times as at end June and based on the three-year fixed rate notes issued in March under the programme, the cost of borrowing was 6% per annum, but could be higher or lower depending on market conditions and tenor.
Based on the 4-cent dividends for FY18 ended Dec declared and paid out by the group and Thursday’s closing price of $0.68 per share, the cost of equity is approximately 5.88% per annum.
“Having considered the group’s current net gearing level and the incurrence of additional interest expenses as described above, the rights issue would be a more suitable funding solution that would strengthen the financial position of the group by augmenting the group’s balance sheet and capital base, and at the same time reduce the net gearing of the group,” says Chip Eng Seng.
Approval from shareholders for the proposed rights issue would have to be sought in an EGM to be convened.
United Overseas Bank is the manager and underwriter for the rights issue.
As at 11.20am, shares in Chip Eng Seng are trading 2.5 cents lower at 66 cents.