Capital markets executive summary | Fri 15 Sep 2023

Capital markets executive summary | Fri 15 Sep 2023

Bursa reprimands and fines RHB for due diligence lapses

There were 2 breaches of the listing requirements which led Bursa to reject the proposed initial public offering (IPO) of an ACE Market applicant, that RHB Investment Bank was the sponsor and principal adviser of, the 2nd being the failure to immediately notify Bursa of material developments after the initial submission. Material information relating to the recoverability of advances to a major supplier that had been wound-up prior to the initial submission was omitted, which was only disclosed upon Bursa’s query. Bursa did not find it acceptable that the bank relied on the applicant and other advisers and reactively undertook enquiries after being prompted to by Bursa. RHB closed at RM5.69 while Bursa closed at RM6.88.

Central Impression’s AA- bonds rating affirmed

MARC Ratings affirmed the rating of the company’s RM45m fixed rate serial bonds. The rating reflects the credit strength of AEON Co (M) Berhad, which is the principal lessee of the 506k sq ft net lettable area AEON Mall Ipoh Klebang. The 10-year lease agreement expires in October 2025 with an option to extend for 5 years. There are issues with tax arrears although in the past, the company managed to arrange instalments with the tax authority. CISB’s shareholders have also provided irrevocable commitment for financial support in relation to tax payments and other operational shortfalls. The company receives RM18.3m lease payments annually from AEON. Designated account balances of RM20.6m at end-Jun 2023 can meet RM16.2m debt service payments due on 21 Nov 2023. AEON, 51.7%-owned by Japan’s AEON Co Ltd, operates 35 departmental stores in Malaysia, 28 of which are self-managed malls at end-Mar 2023. For FY ended 31 Mar 2023, the debt service coverage ratio was 2 times. Aeon Co closed at RM1.03.
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VS Capital Management AA sukuk rating affirmed

MARC Ratings affirmed the rating of the RM1b Islamic medium term notes programme. VS Capital Management is a wholly-owned fundraising vehicle of VS Industry Berhad, which unconditionally and irrevocably guarantees the sukuk. VS has strong cash flow generation given its competitive edge as one of the largest electronics manufacturing services companies in the region. Negative factors are low operating margins, customer concentration and labour risks. VS ranked 27th globally and 6th in ASEAN by revenue in 2022. The company’s top 3 customers account for more than 57% of revenue in FYE 31 Jul 2022, although they are reputable major international companies with whom VS has had relationships for 10-22 years. In 9MFY2023, revenue climbed 18.2% year-on-year to RM3.4b with more orders from key customers and full resumption of operations after labour issues were resolved. Pre-tax profit fell 9.6% to RM151.2m due to higher operating and financing costs. VS enjoyed 5.7% average operating margins in the last 5 years which is protected by contract provisions for pass-through of raw material cost increases. Cash flow from operations returned to pre-covid levels at RM197m. Debt-to-equity (DE) ratio was 0.37 times and net DE ratio was 0.13 times at end-Apr 2023.

Propel Global to sell 55% of chemicals unit to Hextar

The oil and gas service provider agreed to a term sheet with Hextar Kimia Sdn Bhd, which sets out the key commercial terms and conditions of the proposed sale of Propel Chemicals Sdn Bhd (PCSB), subject to a definitive share sale agreement within 1 month. The sale price is RM16.5m to be paid in cash. PCSB is licensed by Petronas to supply chemicals for production enhancement and maintenance of oil and gas production facilities. The balance 45% of PCSB is held by Rancak Nikmat Sdn Bhd (36.9%) and Wiramas Baiduri Sdn Bhd (8.1%). Hextar Kimia manufactures, blends, provides bulk storage, repackages and supplies specialty chemicals, catalyst and absorbents. The company is 51% owned by Ekopintar Sdn Bhd and 49% by Hextar Global Bhd. RHB Investment Bank is the principal adviser. Propel Global closed at 17 sen while Hextar Global closed at 74 sen.

Saudi Arabia’s ADES to price IPO at top of range

ADES, which is headquartered in Khobar, Saudi Arabia operates a fleet of offshore and onshore rigs in the Middle East, North Africa and India. Its customers include Saudi Aramco, Kuwait Oil Co and Qatar’s North Oil Company. It was listed in London in 2017 but Saudi Arabia’s sovereign wealth fund, PIF, ADES Investments Holding and Zamil Group Investment took the company private in 2021. The initial public offering (IPO) entails the issuance of 237,103,128 new shares and sale of 101,615,626 existing shares at an expected price of SAR13.50 (RM16.85). ADES, which will raise SAR4.57b in the IPO, follows the flotation of Saudi Arabian auto rental company Lumi last week at a valuation of SAR3.63b.