On 8th June, VS Industry fixed the price of Rm 4.2548 which is the 5 trading days average price prior to the price fixing date and placed out about 20 million shares at Rm 3.85 with a discount 40.48 sen or 9.984% per share.
Many shareholders were disappointed and sold aggressively as if the price will fall further the next day. As a result, the share price dropped 21 sen to close at Rm 4.13. The sellers felt that the company was not fair to them to sell so much of shares with a discount of about 10% to their cronies who may sell them to make a quick profit. Fear and anger that the price might drop further are natural human reaction in share investment.
What is the correct meaning of this share placement exercise and how it benefits the company and all its shareholders?
The company issued about 20 million new shares of Rm 1.00 par value and sold them at Rm 3.85 per share. The company would receive about Rm 77 million cash with an extra ordinary profit of Rm 57 million.
The company’s market capitalization has suddenly increased by 10% and it has Rm 77 million more to reduce its borrowing and expand its operation. This is a smart way to expand the company as permitted by KLSC. I notice that there are several companies with clever management, for example IJM Corporation Bhd, often place out shares. This is a good strategy.
After having studied the details of VS Industry and compare it with MPI and Globtronics, I believe the investors who paid Rm 77 million are not fools.