Many people have asked for my opinion about the Eversendai’s recent share placement announcement which is quite complicated and not easy to understand.
In short, I think the proposed share placement is a good deal.
After the company issued shares to sell to the public investors to get cash at the IPO, the company can issue shares to place out to institutional investors to get more cash to expand its business. Share placement is a clever way to get more cash to do business. Investors must bear in mind that unless the company is reasonably good, no institutional investors would want to buy placement shares even at a discount.
In the normal way of a share placement, the company place out share at the average price of the 5 days prior to fixing the price minus not more than 10%. For example, say the average of the last 5 trading day average is Rm 1.08. The placement price will be 1,08 minus 10% = 97.2 sen. The price is fixed at 97.2 sen
In the proposed method, “Macquarie Bank” or “Investor”) has one year option to buy up to 10% of the total issued shares at the average price of 5 days prior to fixing the price minus 12% instead of the normal 10%.
I believe Eversendai will continue to report increasing profit and the share price will continue to increase. If that is the case, the net placement price will be higher than the case if the placement is executed now.
In any case, the company needs the money to do more business and I believe the company has a good future because it is the best big steel structure specialist contractor in Malaysia. Being a specialist, the company can command a higher margin of net profit.
Unfortunately, the company lost about Rm 100 million in buying into an Oil and Gas company in Singapore last year which has depressed its share price.
To make money, all investors must look at the company’s long term business prospect.
As Tan Sri Nathan, the CEO, has announced that the company can complete Rm 2 billion of work in the current year, I believe its profit should be increasing which is the most powerful catalyst to move the share price.
I am obliged to tell you that I am the 2nd largest shareholder of the company. If you buy the shares, I am not responsible for your profit or your loss.