More and more companies listed on Bursa Malaysia are rushing to issue shares to take advantage of a relaxed ruling that allows companies to raise fresh funds through private placements for their recapitalisation before the Dec 31 deadline.
A quick check on Bursa shows that, since October, more than 20 companies have announced plans to raise as much as RM1.5 billion through private placements. They include Axis Real Estate Investment Trust, MyEG Services Bhd, Kobay Technology Bhd, YB Ventures Bhd, ManagePay Systems Bhd, Advancecon Holdings Bhd, Saudee Group Bhd, Samaiden Group Bhd, Muar Ban Lee Group Bhd, Mieco Chipboard Bhd, Classic Scenic Bhd, Euro Holdings Bhd, Jade Marvel Group Bhd, Binasat Communications Bhd, Straits Energy Resources Bhd, Seni Jaya Corp Bhd, Ageson Bhd, AYS Ventures Bhd, Vertice Bhd, Techna-X Bhd, Symphony Life Bhd and Trive Property Group Bhd.
According to the Securities Commission Malaysia’s 2020 annual report, secondary issuances saw a strong growth of 76% to RM8 billion last year over 2019. Capital raised through primary issuances amounted to only RM2 billion.
On April 16 last year, Bursa Securities relaxed its fundraising rules for listed issuers to help ease cash constraints caused by the Covid-19 pandemic. The rules allow companies to sell up to 20% of their issued share capital via private placements until Dec 31, 2021, compared with 10% previously.
But the relaxed rules are not without risks. Some companies see it as a quick way to raise money, but their earnings performance continues to be dismal. And, often, the stated utilisation of the proceeds can be vague. For example, the company could just say the proceeds are for working capital purposes, and there is little transparency on the identity of the placees. At the same time, the share capital of many of these companies increases manifold and each exercise results in further dilution to the stakes of minority shareholders.
With the economy now in a recovery mode, and the deadline less than two months away, will companies revert to the conventional ways of fundraising, such as bank borrowings, to sustain their operations or will there be even more companies rushing to take advantage of the ruling before the door closes?