Koh Brothers Eco Engineering plans S$27.6 million rights issue; parent to take up S$15.1 million share

[SINGAPORE] Koh Brothers Eco Engineering (KBEE) plans to raise up to S$27.6 million through a renounceable underwritten rights issue, with its parent committing to subscribe for its full entitlement.

KBEE will offer up to 563,644,184 new shares at S$0.049 each, on the basis of one rights share for every five existing shares held.

The issue price is a 30 per cent discount to the volume weighted average price of S$0.070 on Oct 29, the last full market day before the announcement, and 29 per cent below the closing price of S$0.069, the group said in a bourse filing on Wednesday (Nov 4).

It is also 25.8 per cent below the theoretical ex-rights price of S$0.066.

Net proceeds of about S$27.1 million will be split two ways. About 80 per cent, or S$21.7 million, will go towards working capital, including operating and administrative expenses and payments to subcontractors and suppliers on construction projects.

The remaining 20 per cent, or S$5.4 million, is earmarked for capital expenditure and/or repayment of bank borrowings.

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KBEE said the exercise will strengthen its financial position and reduce its reliance on uncommitted banking facilities. It noted the need for working capital to fulfil its order book, which includes large-scale construction projects.

Its directors said that barring unforeseen circumstances, present working capital is sufficient for current requirements.

The issue is backed by irrevocable undertakings from four shareholders holding 84.2 per cent of KBEE in aggregate.

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They are parent Koh Brothers Group (KBG) with 54.81 per cent, Penta-Ocean Construction with 28.74 per cent, chairman Koh Keng Siang with 0.54 per cent, and executive director and chief executive officer Shin Yong Seub with 0.06 per cent.

Together they have committed to take up 474,305,285 rights shares, and will not apply for excess shares.

SAC Capital is the proposed manager and underwriter. It is expected to underwrite the remaining 89,338,899 rights shares, though the agreement has not yet been signed. KBEE will make a separate announcement once that is done.

In a separate filing, KBG said its undertaking covers 308,925,521 rights shares, for a subscription amount of about S$15.1 million, to be funded from internal resources.

If the issue is fully subscribed, KBG’s stake will remain at about 54.81 per cent.

The subscription is a discloseable transaction under Singapore Exchange (SGX) rules, as its relative figure of 18.9 per cent exceeds the 5 per cent threshold but falls below 20 per cent. This is based on a KBG market capitalisation of about S$80 million.

The pro forma financial effects on KBG are minimal. Net tangible assets per share will dip to S$0.6732 from S$0.6737, while earnings per share will remain at S$0.045. KBG’s issued share capital will not change.

The rights issue is subject to conditions including SGX in-principle approval and the lodgement of an offer information statement with the Monetary Authority of Singapore. The record date will be set after approval is obtained.

Shares of Koh Brothers Eco Engineering closed 15.9 per cent or S$0.011 lower at S$0.058. Meanwhile, shares of Koh Brothers Group closed 3.8 per cent or S$0.007 higher at S$0.19.