Minority shareholder objects to Darco's share placement

Singapore

A MINORITY shareholder of Darco Water Technologies has questioned the mainboard-listed company's rationale behind a recently proposed "highly" dilutive private share placement and will be challenging the capital raising exercise.

Sofos Infrastructure Investment Fund with a 3.7 per cent stake in Darco sent a two-page letter to Darco's executive director and chief executive Poh Kok Hong last Friday. The minority shareholder sought an explanation for the placement agreement on Jan 12 that will see the issuance of 18.7 million new shares representing 19.9 per cent of Darco's share capital.

The placement shares will represent 16.6 per cent of Darco's enlarged share capital following the completion of the placement.

The placement of shares - subject to the approval of the Singapore Exchange (SGX) - to two individuals and a company at S$0.35 per share would raise about S$6.55 million.

Darco in a regulatory filing on Jan 13 announced the share placement and stated that the placement price represents a premium of approximately 75 per cent to the volume weighted average price of S$0.20 for trades transacted on Jan 8, being the last full market day on which the shares were traded prior to the agreement.

The company said 70 per cent of the net proceeds (after deducting expenses) would be used for strategic investments, including joint ventures and acquisitions, with the remainder as working capital.

However, Sofos does not think capital raising is warranted now. It believes that Darco has "sufficient" funds for its endeavours and working purposes.

Further, Sofos took issue with the S$0.35 placement price, which it said is a "significant" discount to Darco's net tangible assets (NTA) per share value of S$0.51. According to Sofos, it worked out the NTA value using the net assets and intangible assets values stated in Darco's unaudited financial statements for the half year ended last June filed with the SGX.

Also, Sofos expressed concern that there were selling activities last December that drove Darco's share price down to below S$0.20 before the share placement agreement.

Sofos asked Darco not to proceed with the placement until it is "satisfied that there are no reasons to object to" the exercise.

Darco had until 4pm on Monday to respond. If Sofos does "not receive a satisfactory reply" by the deadline, it "will place this matter in the hands of our lawyers".

Albert Tan, chief executive of Sofos Capital Management, told The Business Times: "In the interest of the fund investors, we as the fund manager have a fiduciary duty to the investors. We got to question the rationale for the highly dilutive issue."

Sofos Capital Management is the manager of Sofos Infrastructure Investment Fund.

When contacted on Monday, Darco's Mr Poh would only say that "we are currently seeking our legal counsel on Sofo's letter", but declined BT's request for a copy of its response to Sofos.

Darco announced last August that it would focus on its core businesses of environmental systems and water management services, following the exit of the company's founder Thye Kim Meng in May last year as CEO. The latter stepped down because of "fundamental disagreement with major shareholders on the objectives and strategic direction" of Darco.

Darco shares closed unchanged at $0.22 on Monday.