Raffles Edu shares drop 6.14% after Oei's salvo on rights issue

Singapore

RAFFLES Education's stock fell on Friday by 6.14 per cent to close at S$0.107, following news that tycoon Oei Hong Leong wants a shareholders' meeting to vote to quash the private education operator's over-S$27 million proposed rights issue.

After the company announced a renounceable, non-underwritten rights issue on Dec 6, its stock fell steadily from that day's close of S$0.137 to close on Tuesday at S$0.099, before finishing higher at S$0.115 on Wednesday.

After trading hours, the company said in a Singapore Exchange filing (SGX) that it received Mr Oei's letter requisitioning an EGM.

Chairman Chew Hua Seng said in the statement: "The company is taking legal advice on the contents of the letter and will make further announcement as and when necessary."

The company planned to raise 275.86 million new shares at an issue price of S$0.10, on the basis of two rights shares for every 10 existing shares. The issue price represents a discount of about 27 per cent over the last transacted price of Raffles Education's shares on Dec 6.

This would raise S$27.44 million in net proceeds meant primarily to repay loans owed to chairman and chief executive Chew Hua Seng.

Mr Chew had previously extended interest-free shareholder's loans to the company for working capital purposes, with the outstanding amount at around S$16.37 million.

But Mr Oei said he wanted an EGM for a vote to terminate immediately the rights issue, in a letter to the board of directors dated Dec 13.

He and Oei Hong Leong Art Museum hold over 10 per cent stake in the company.

A market observer who declined to be named said it was common for share prices to fall post announcement of a rights issue. Some investors who do not want to put up additional capital for the rights issue may have sold some shares to resubscribe later on for a better price.

This was also likely knee-jerk as the 2-for-10 rights issue was "not too dilutive," the person said.

Thio Shen Yi, joint managing partner of TSMP Law Corporation, believes Mr Oei opposes the rights issue "as he would have to stump up more cash to maintain his shareholding percentage, whereas Mr Chew can just convert his debt to equity and not come up with fresh cash."

Mr Chew has a 21.17 per cent stake in the company and his spouse Doris Chung Gim Lian holds 2.47 per cent.

A share issue mandate approved at the company's annual general meeting (AGM) on Oct 29 allows directors to issue shares of not more than 50 per cent of the total number of issued shares as at that day.

Commenting on why Mr Chew might have opted for a rights issue, Mr Thio said: "As it's a rights issue, no EGM is required for the company to issue shares to CHS to settle the shareholder's loans he's made to the company; any other transaction structure would have required an EGM at which Mr Chew, being an interested party, would not be able to vote."

This represents the latest tangle between Mr Chew and Mr Oei. Last year, Mr Oei called for Mr Chew's removal from the company. He has also sued Mr Chew for some S$15 million.