Malaysian mobile phone operator TM International yesterday announced the terms for its earlier announced M$5.25 billion ($1.4 billion) rights issue and said the portion of the deal that will not be taken up by its largest shareholder, Khazanah Internasional, will be fully underwritten by three domestic banks.
This should come as a relief to investors who have sold the stock since the initial announcement amid concerns about the scale of the transaction and the lack of a firm underwriting commitment, among other things. Only in the past three sessions has the share price managed a bit of a rebound, which sources say may be partly due to the management's reassurances about the company's current financial position and its outlook post the rights issue during the just-ended roadshow. It might also be partly due to the fact that the stock had just become too cheap.
Either way, the 20.8% bounce in the share price since last Thursday (the stock was suspended yesterday) made this the best time to fix the price since the February 26 announcement of the rights issue. However, the stock is still down 14.7% from where it traded at the time of that announcement, and that's after it had already fallen in the preceding days as the fundraising plans were leaked to the media.
The price and number of shares on offer were announced just before the start of an extraordinary general meeting yesterday morning, at which TMI's shareholders approved the share issue.
The telecom operator said shareholders will be able to buy five new shares for every four existing shares they own at a price of M$1.12 apiece. The price represents a 57% discount to Monday's closing price of M$2.61 and a 50.9% discount to the volume-weighted average price for the past five sessions.
However, because the company is issuing more shares than what it has currently outstanding, the discount relative to the current market price doesn't really tell the whole story and potential buyers really should look at the discount versus the theoretical ex-rights price.
Based on the five-day VWAP, the ex-rights price works out to be M$1.64, resulting in a discount of 31.7%, which is at the lower end of where some of this year's other rights issues have been offered -- DBS, CapitaLand, Maybank, Bank Danamon and Chartered Semiconductors all set the price at a 34%-35% discount to the theoretical ex-rights price, while CapitaMall's S$1.23 billion ($814 million) offering, which is due to close today, was priced at a 28.7% discount.
As announced earlier, government investment fund Khazanah will take up its entitlement of 44.5% and yesterday TMI confirmed that CIMB, RHB Investment Bank and Maybank Investment Bank will jointly underwrite the remaining 55.5%, meaning the company can be certain that it will be able to raise the full amount. Khazanah has also signed an agreement with CIMB that gives the investment bank the right to require Khazanah to subscribe for an additional 20% of the rights shares in case a large number of minority shareholders choose not to participate. However, according to sources, the Employees Provident Fund and the Permodalan Nasional Berhad fund (PNB), which together hold about 26% of the company, have also indicated that they will take up their entitlements, suggesting that the underwriting banks are really only holding a risk position corresponding to less than 10% of the total deal.
A number of banks are involved in making sure the deal is a success. TMI has seemingly chosen to include several additional names to the manager roster for relationship reasons or as a thanks for good advisory work on previous deals. The rights issue now has six lead managers: CIMB, Goldman Sachs, J.P. Morgan, Maybank, Morgan Stanley and RHB. And these six will be joined by Deutsche Bank and UBS for a line-up of eight global coordinators, which in the case of a Malaysian rights issue appears to be pretty much a marketing title.
TMI is expected to announce the timetable for the rights offering later this week.