Indonesia's BLT announces $131 million rights issue

The one-for-one offer, at a 39.7% discount to Terp, sends the company's share price tumbling by 18.6% as investors digest the large increase in share capital.

Small-cap Indonesian shipping company Berlian Laju Tanker (BLT) said yesterday that it is seeking to raise Rp1.225 trillion ($131 million) from a renounceable rights issue to boost the capital available for a potential fleet expansion and for investments in "value-creating opportunities".

The company, which is listed both in Jakarta and in Singapore, is offering existing shareholders one new share for each existing share they hold at a price of Rp220 apiece and the equivalent price in Singapore dollars based on the exchange rate five days before the book closure date. The price represents a 56.9% discount to Tuesday's closing price of Rp510 and a 39.7% discount to the theoretical ex-rights price (Terp) which works out at Rp365.

The company's controlling shareholder, PT Tunggaladhi Baskara, which owns 61.9% of the outstanding share capital, has committed to buy approximately 1.064 billion rights shares corresponding to about 30% of its current holdings and 19.1% of the total rights issue.

The remaining portion will be fully underwritten by four banks -- Deutsche Bank, Indonesia-based Danatama Makmur, Norway-based DNnB NOR Bank, and Standard Chartered. The four banks will get paid a 2.5% fee.

The company's share price fell sharply following the announcement, closing 18.6% lower at Rp415 in Jakarta. While the discount versus Terp is pretty reasonable, investors may be concerned about the large increase in the share capital, with the number of outstanding shares set to double. This means there will be a substantial dilution for investors who do not want to or are not able to take up their rights. Also, some investors may be uneasy about the fact that the controlling shareholder will not take up its full entitlement in the rights issue.

The share price has been on a downward trend since early April when it briefly touched above Rp700. Including yesterday's drop it has fallen more than 40% since then.

This is also the second time this year that BLT, which has a market cap of just $265 million, is raising a large amount of new capital. In February it raised $100 million from the sale of five-year convertible bonds, which carry a 12% coupon and a 10% conversion premium. That money was supposedly raised to cover the expected put this month of an outstanding $125 million CB.

At the time of the CB, the company was in the process of trying to acquire Norwegian shipping company Camillo Eitzen & Co (CECO), which analyst viewed as a potentially transformational transaction for the company both in terms of its size and the improved business access. This was believed to have helped drive interest in the CB.

However, six weeks later the company said that it had withdrawn its indicative proposal for CECO.

A liquid cargo specialist, BLT is one of the largest chemical tanker operators in the world with a fleet that comprises 63 chemical tankers (plus 10 newbuilds), 14 oil tankers and 15 gas tankers (plus two newbuilds).

The rights issue is subject to shareholders' approval at an extraordinary general meeting that has yet to be announced. However, the tentative timetable suggests the record date will be July 9 and the rights shares will be available for subscription in Jakarta on July 13 to 26 and in Singapore on July 14-21.

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