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Trendlines: Proposed rights issue at 19.3% premium a better gauge of its value

CATALIST-LISTED startup incubator The Trendlines Group on Friday said that its current market price "does not properly reflect the company's value", and that its proposed rights issue priced at a 19.3 per cent premium to the counter's last trading price of 8.8 Singapore cents on Sept 26 would be a better gauge of the company's value. 

This was in response to Singapore Exchange (SGX) asking why the firm had proposed a rights issue at such a premium, and the rationale for shareholders to subscribe for these shares when they could purchase them from the market at a lower price. 

In a regulatory filing, Trendlines noted that a share price of 10.5 Singapore cents would provide a better estimate of the company's value, as it recently completed a private placement to Librae Holdings, with placement shares being issued at the same price. Librae Holdings is an entity related to UK business tycoon Vincent Tchenguiz, and the placement price represented a 34.6 per cent premium over the counter's volume-weighted average price, and its last traded price for the full day prior to the subscription agreement. 

As at 12.27pm on Friday, Trendlines shares were trading at 9.5 Singapore cents, up 3.3 per cent, or 0.3 cent. Some 8.5 million shares changed hands, making it one of the most heavily traded stocks on the Singapore bourse for the day.

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"Notwithstanding that the current market price is lower than the issue price for the rights issue, the current average trading volume of the company's shares is low, and shareholders who wish to obtain further equity participation in the company may not be able to purchase the shares from the market at the current market price," Trendlines added. 

Following talks with some of its substantial shareholders, including Librae, the company had also received a commitment from Librae to participate in a rights issue at the same price as the placement, Trendlines said. 

The company has stated that there is no minimum amount to be raised from the rights issue. Librae will be providing an irrevocable undertaking to subscribe for its entitlements and excess rights shares, representing 100 per cent of all the rights shares to be issued under the minimum subscription scenario, and 92.8 per cent of the rights shares to be issued under the maximum subscription scenario. 

In response to SGX's queries on the circumstances that led to Librae's irrevocable undertaking, Trendlines noted that it had considered the possibility of "negative market perception" in the event of a failed offering. Therefore, following exploratory discussions with some of its substantial shareholders, Librae had agreed to provide the irrevocable undertaking. 

Additionally, the Singapore bourse also questioned Trendlines on how the ratio of one rights share for every nine existing shares held was determined, as such an allotment ratio will result in fractional entitlements being disregarded. To this end, Trendlines noted that the ratio for the rights issue was arrived at after considering the company's funding needs, and Librae's commitment under the irrevocable undertaking. 

Based on the group's half-year results announced on Aug 7, SGX noted that Trendlines has cash and equivalent of US$8 million, and recently raised S$10.8 million via a placement. Therefore, the bourse queried the firm on its need to raise more monies through the proposed rights issue in September. 

To date, Trendlines has not utilised the S$10.8 million raised from its August placement, where Librae subscribed for shares at 10.5 Singapore cents each, and became a 14.55 per cent shareholder of the company. According to the filing, the company also has a balance of about S$2.4 million from its S$19.3 million initial public offering in November 2015, and S$5.3 million remaining from its S$13.3 million placement in 2017.

"While the company does not have an urgent need to raise funds, it believes that it can put the funds to good use to further build shareholders' value," Trendlines said. 

"In view of the recently completed placement at a premium to the market price of the company's shares, and Librae's indication during the exploratory talks that it was prepared to increase its investment in the company at the same price as the placement, the company is taking advantage of the opportunity to raise additional funds through equity at a premium to the current market price, and thereby strengthen its capital structure," Trendlines said.  

The company noted that these funds will be used for working capital, and investments in its current and new portfolio companies. 

It added that there is no intention for board and/or management representation by Librae in the company or the group's entities.

On Sept 24, Trendlines received conditional commitment of up to US$22 million from Librae, Temasek Holdings and other investors for its new Singapore-based venture fund, of which Librae contributed US$10 million. 

The company noted that it has discussed with Librae about its participation in the investment committee of this new Agrifood fund, and that this does not give Librae any representation on the company's board or management.

The fund, which will set up its Asia-Pacific headquarters in Singapore, will invest in new, innovation-based agrifood tech companies in Singapore as well as foreign agrifood firms.