MARKET DEVELOPMENT
PNB Sees Whether Sime Can Raise RM6bil Without Rights Issue
PNB Sees Whether Sime Can Raise RM6bil Without Rights Issue
05/10/2015 (The Star) - Permodalan Nasional Bhd (PNB), the parent of Sime Darby Bhd, is scrutinising the latter’s fund-raising plans with the view of exploring options other than a rights issue, according to sources close to PNB.
It is learnt that the fund prefers an exercise that would ensure that Sime’s management “sweats” its assets better and brings higher returns than currently.
PNB, which owns 53% of Sime, followed by the Employees Provident Fund (EPF) at 13%, are institutions to largely fund any rights issue if that is the route that Sime Darby takes to raise capital.
StarBiz reported last month that Sime was mulling over a rights issue that may raise up to RM6bil as the company was seeking to lower its debts by at least a third. In response, the company had stated that it was looking at various options to raise funds.
If Sime opts for a rights issue, PNB would have to fork out some RM3bil for its portion if its stake is not to be diluted.
“PNB does not want its stake in Sime to be below 50%. That is something the fund is quite particular about,” said a source close to the fund.
Sources say that instead of a rights issue, PNB is more open to Sime exploring other options such as a placement of new shares or a bond issuance.
Both, however, have complications. For one, PNB, understandably, would not be inclined to support any placement exercise that would dilute its holding in Sime to below the crucial 50% threshold.
As for the bond issuance, Sime would have to contend with the fact that its rating was recently downgraded, which would impact the coupon rate of the issuance. A lower rating would translate into higher cost of funds for any debt issuance.
Recall that in May, Standard and Poor’s (S&P) lowered Sime’s long-term corporate credit rating by a notch from A to A- with a negative outlook. S&P said it might revise its outlook if Sime started to “markedly reduce” its debts.
On March 2, Sime completed the acquisition of London listed New Britain Palm Oil Ltd (NBPOL) for RM6.07bil. As a result, Sime’s debt has gone up to almost RM18.3bil. Sime previously looked at other fund-raising options to pare down its debts.
Earlier this year, it intended to launch an initial public offering for its motor division but the plan was shelved in May as conditions in the stock market deteriorated.
At the same time, all three key divisions of the conglomerate are experiencing a downturn in demand and consequently impacting its performance.
With almost 50% of its income coming from the plantation sector, Sime is hit by the decline in crude palm oil price.
The conglomerate has four other divisions – namely industrial, automotive, property and utilities. After the plantation sector, the industrial segment is Sime’s major contributor followed by the automotive segment. But the global economics slowdown has affected both divisions.
President and chief executive officer Tan Sri Mohd Bakke Salleh said last month while announcing the company’s full-year results, that the group was weighing several options to strengthen its balance sheet. Its net profit fell 31% to RM2.3bil for the year ended June 30, 2015, joining its peers in the plantation sector hit by a slump in commodity prices.
“The weak outlook for commodity prices, coupled with cautious consumer spending and stricter monetary policies, will be some of the major headwinds that the group is expected to face,” Bakke had said, adding that the group will focus on implementing strategic cost-saving initiatives on the back of better capital management.
If the rights issue exercise pans out, it will be the first time the enlarged Sime group is making a cash call to its shareholders since it became a conglomerate following a merger of all plantation companies under the group in 2007.
The merger of Sime Darby, Kumpulan Guthrie Bhd and Golden Hope Plantations Bhd created one of the world’s largest palm oil plantation group by market value.
It is learnt that the fund prefers an exercise that would ensure that Sime’s management “sweats” its assets better and brings higher returns than currently.
PNB, which owns 53% of Sime, followed by the Employees Provident Fund (EPF) at 13%, are institutions to largely fund any rights issue if that is the route that Sime Darby takes to raise capital.
StarBiz reported last month that Sime was mulling over a rights issue that may raise up to RM6bil as the company was seeking to lower its debts by at least a third. In response, the company had stated that it was looking at various options to raise funds.
If Sime opts for a rights issue, PNB would have to fork out some RM3bil for its portion if its stake is not to be diluted.
“PNB does not want its stake in Sime to be below 50%. That is something the fund is quite particular about,” said a source close to the fund.
Sources say that instead of a rights issue, PNB is more open to Sime exploring other options such as a placement of new shares or a bond issuance.
Both, however, have complications. For one, PNB, understandably, would not be inclined to support any placement exercise that would dilute its holding in Sime to below the crucial 50% threshold.
As for the bond issuance, Sime would have to contend with the fact that its rating was recently downgraded, which would impact the coupon rate of the issuance. A lower rating would translate into higher cost of funds for any debt issuance.
Recall that in May, Standard and Poor’s (S&P) lowered Sime’s long-term corporate credit rating by a notch from A to A- with a negative outlook. S&P said it might revise its outlook if Sime started to “markedly reduce” its debts.
On March 2, Sime completed the acquisition of London listed New Britain Palm Oil Ltd (NBPOL) for RM6.07bil. As a result, Sime’s debt has gone up to almost RM18.3bil. Sime previously looked at other fund-raising options to pare down its debts.
Earlier this year, it intended to launch an initial public offering for its motor division but the plan was shelved in May as conditions in the stock market deteriorated.
At the same time, all three key divisions of the conglomerate are experiencing a downturn in demand and consequently impacting its performance.
With almost 50% of its income coming from the plantation sector, Sime is hit by the decline in crude palm oil price.
The conglomerate has four other divisions – namely industrial, automotive, property and utilities. After the plantation sector, the industrial segment is Sime’s major contributor followed by the automotive segment. But the global economics slowdown has affected both divisions.
President and chief executive officer Tan Sri Mohd Bakke Salleh said last month while announcing the company’s full-year results, that the group was weighing several options to strengthen its balance sheet. Its net profit fell 31% to RM2.3bil for the year ended June 30, 2015, joining its peers in the plantation sector hit by a slump in commodity prices.
“The weak outlook for commodity prices, coupled with cautious consumer spending and stricter monetary policies, will be some of the major headwinds that the group is expected to face,” Bakke had said, adding that the group will focus on implementing strategic cost-saving initiatives on the back of better capital management.
If the rights issue exercise pans out, it will be the first time the enlarged Sime group is making a cash call to its shareholders since it became a conglomerate following a merger of all plantation companies under the group in 2007.
The merger of Sime Darby, Kumpulan Guthrie Bhd and Golden Hope Plantations Bhd created one of the world’s largest palm oil plantation group by market value.