IF a company’s shares are considered a form of currency, many small
cap companies have been minting money via a series of private placements
of new shares over the past 18 months.
A random check on penny stocks shows that the share capital of many
of these companies have increased manifold. Among them are AT
Systematization Bhd, Vsolar Group Bhd, Oversea Enterprise Bhd, Green
Ocean Corp Bhd and Fintec Global Bhd.
The share issuance spree started to gain momentum after Bursa
Malaysia relaxed the rules on private placement last April at the peak
of the first wave of the Covid-19 pandemic.
The stock exchange raised the private placement general mandate to
20% of a company’s issued share capital, from 10% previously. The
threshold is lower than other bourses, including those of Hong Kong and
Singapore.
On top of that, companies are permitted to issue up to 30% of their
existing share capital in a share placement if the shareholders approve
the exercise at an extraordinary general meeting.
The regulators said the relaxation of the rule — until year-end — is
an interim measure to help public-listed companies that urgently need to
raise fresh capital to sustain their operations during these trying
times.
Many small cap companies have opted for the interim measure to raise
fresh cash for working capital and future investments or for new
business ventures, for instance, production of rubber gloves or
distribution of vaccines and Covid-19 test kits.
Fresh capital raised from secondary issuance soared by 76% to RM8
billion in 2020, according to the Securities Commission — evidence of
interest in share placements and rights issues.
Coincidentally, most of these companies have a rather similar pattern
of fundraising exercises, consisting of a share placement, followed by a
cash call and share issuance schemes to reward employees, especially
the board of directors.
It is also worth noting that the share prices of such small cap
companies usually shoot up soon after these fundraising exercises,
despite their dismal earnings performance. Below are some of the
companies which have seen a significant increase in their share capital.
AT Systematization
Topping the list is ATS, one of the companies that have ventured into
rubber glove manufacturing. Its total outstanding shares swelled by
811% to 4.23 billion shares between Jan 1, 2020, and March 15, 2021,
according to Bloomberg data.
ATS, in which Fintec Global holds a 9.9% stake, carried out two
private placements during the year. The first was proposed in August and
the second in November. It issued a total of 1.34 billion shares to
raise about RM159.5 million.
The first placement was priced at 6.3 sen to 7.16 sen. Its share
price ranged between seven sen and 10 sen in October 2020, when it
completed the placement.
The second placement was issued in December at between 15.95 sen and
18 sen — more than 50% higher than the previous one, thanks to the hike
in ATS’s share price over the two months.
The first placement was to finance its diversification into the
manufacturing and sale of rubber gloves and related machinery, which was
in line with its proposed acquisition of industrial glove maker Pearl
Glove (Malaysia) Sdn Bhd.
The acquisition was cancelled in November, however, with the group
citing the non-fulfilment of certain conditions, without elaborating on
them. In January 2021, ATS sued the shareholders of Pearl Glove for
RM4.4 million, as it was not satisfied with the result of the exercise.
The second placement was to raise funds for capex for the glove
business as well as working capital purposes, as the company was setting
up its rubber glove plant in Perak.
Besides share placements, ATS had also undertaken a rights issue of
991.2 million shares to raise RM34.7 million. The proceeds were
earmarked for the expansion of its production capacity, repayment of
bank borrowings and working capital.
On top of that, ATS has rewarded its employees with share issuance
schemes. As at March 10, eligible staff had exercised options amounting
to 1.45 billion shares.
Vsolar Group
Vsolar Group Bhd, another company linked to Fintec Global, saw its
share capital swell 587% to 2.82 billion shares as at March 15,
following two private placements, a rights issue and several share
issuance schemes to its employees between July 2020 and January this
year.
The first placement was announced on Nov 11, and the second was
announced about a month later on Dec 16, both for working capital for
its solar photovoltaic solutions operations. It raised a total of RM16.5
million.
The issue price for the first placement was fixed at 3.42 sen on Jan
6, 2021, and for the second, at 3.78 sen per share on Nov 11, 2020, when
its share price was trading around four sen.
Earlier in the year, the group had raised RM36 million via a rights
issue that was completed on July 13. This was to raise capex funds for
the development and construction of biomass or biogas plants.
Furthermore, the company has so far granted 901.8 million shares
under the share issuance schemes, equivalent to approximately 30% of its
share capital.
Green Ocean Corp
Like ATS, Green Ocean Corp is also raising fresh capital for its
rubber glove venture. Its current core business is the trading of palm
oil products.
In 2020, the company started its fundraising activities with a
private placement of 28.97 million shares, equivalent to 10% of its
share capital in late July. The new shares were priced at 18.5 sen
apiece and raised RM5.36 million.
Meanwhile, the hardly traded stock shot up from nine sen on July 22
to 32.2 sen on Aug 10 — the highest level since April 2006. However, it
lost ground soon after and closed at 6.5 sen last Friday.
The downtrend did not hinder Green Ocean’s second fundraising
exercise in less than two months. In September, it announced a share
placement of 95.6 million shares (30% of its share capital) plus a
four-for-two rights issue that came with three detachable warrants. On
top of that, Green Ocean wanted to grant an employees’ share options
scheme (ESOS), involving up to 30% of its total number of issued shares,
for eligible directors and employees.
The rights issue of 828.5 million shares was priced at 10 sen and
oversubscribed. Subsequently, Green Ocean’s share capital was enlarged
to 1.242 billion shares in January 2021, compared with 289.7 million
shares a year ago.
Still, the company is expected to issue more shares if its senior
officers decide to exercise their ESOS. According to filings with Bursa
Malaysia, Green Ocean has granted ESOS to executive director Mak Siew
Wei, chairman Datuk Nik Ismail Nik Yusoff, and two independent and
non-executive directors Roy Winston George and Khoo Chee Siang.
Mak, who bought into Green Ocean last July with an equity interest of
17.07%, has ceased to be a substantial shareholder as a result of the
cash call.
Since Jan 4, the company has granted 963.7 million to the four senior
executives in the price range of 5.75 sen to 7.5 sen, which is less
than the rights issue price.
Fintec Global
Fintec Global Bhd’s issued share capital more than quadrupled to 3.37
billion shares as at March 15, 2021, from 745.56 million as at January
2020.
The group, which is involved in various business sectors by virtue of
its equity stake in ATS, Vsolar, Focus Dynamics Group Bhd, DGB Asia Bhd
and MLabs Systems Bhd, completed two private placements in 2020.
The first exercise was proposed on April 23, and saw the placement of
82.11 million shares, raising a total of RM2.96 million for working
capital purposes.
A month later, it announced another private placement of 282.14
million shares, fixed at an issue price of 5.35 sen for the first
tranche of 100 million shares and 7.1 sen for the second tranche
comprising 182.14 million shares.
A total of RM18.3 million was raised, earmarked for “investment in
healthcare equipment manufacturing and/or trading business” as well as
working capital purposes.
On Sept 4, 2020, the group proposed a diversification of its business
and subsidiaries to include the manufacturing and sale of rubber
gloves, as it hoped to capitalise on the high demand amid the Covid-19
pandemic.
To fund its venture into the glove business, Fintec proposed to
undertake a renounceable rights issue of up to two billion new shares,
which was subsequently fixed at eight sen per rights share.
The group rewarded its employees with a share issuance scheme,
granting roughly 697 million shares to eligible employees. The amount is
equivalent to 20% of its current issued share capital.
Key Alliance Group
Key Alliance Group Bhd also followed the same path — a share
placement, rights issue and share issuance scheme for eligible employees
— last year.
Its issued share capital increased 352% to 2.35 billion shares, following two share placements and a rights issue last year.
It undertook two private placements, which saw some 262.1 million new shares being issued.
The first was completed in April 2020, with a total of 57.8 million
shares issued at 1.35 sen apiece, raising RM780,705 in proceeds
earmarked for the repayment of bank borrowings and working capital
purposes.
Three months later, it completed a second private placement for the
year, issuing a total of 204.2 million shares at six sen each.
It raised a total of RM12.25 million from the exercise, which was
primarily for the expansion of its cloud services, data centre and IT
business. A portion of the proceeds went to the building of an internet
exchange point at its existing data centre in Menara Lien Hoe.
Last August, the company continued its share issue spree. This time
round, it made a cash call to issue up to 982.21 million new shares,
raising a total of RM49.1 million to fund its diversification into the
marketing, distribution and trading of medical equipment, devices and
related products.
Still, the two share placements plus a rights issue failed to meet its capitalisation requirements.
In January this year, Key Alliance proposed another private placement
of up to 609.45 million shares, equivalent to 30% of its enlarged share
capital, to raise funds for the development of an e-commerce platform
for medical equipment, devices and related products.
Similarly, eligible employees were rewarded with a share issuance
scheme, receiving a total of 889.5 million shares between February 2020
and January 2021.
