Daya Materials (Daya) on 22 August 2014 signed 2 MoAs with Siem Offshore Rederi AS (SORA) for the acquisition of SD1 for USD140m (c.RM444.1m) and SD2 for USD140m and an additional USD2.3m (c.RM7.3m) for a 50mt active heave compensation (AHC) 3,000metres crane. The acquisition will be satisfied by cash, and thus Daya has announced to undertake multiple fund raising proposals i) placement, ii) renounceable rights issue of new ordinary RM0.10 shares with free detachable warrants to raise gross proceeds of RM230m, iii) 7 year reedemable convertible secured bonds of <RM120m nominal value, and iv) increase in authorised share capital from RM200m comprising 2bn Daya shares to RM500m comprising 5bn Daya shares. Albeit the acquisition would benefit the Group with higher margins from owned assets, however the various funding exercises will severely dilute the Group‟s EPS. We are revising our call to Neutral, with TP of RM0.33 having accounted for the placement and rights issue assumptions. Our theoretical ex-all price will be further diluted to RM0.25, pre-exercise of warrants.

SD1 & SD2. Currently leased from SORA to Daya for a long-term charter basis contract (SD1 – 7 years, SD2 – 3 years) to Technip Norge AS in the North Sea and North Atlantic Regions. Both the new-built offshore subsea construction vessels have been deployed in the North Sea since early March this year. The vessels are the main drivers for Daya‟s O&G division with margins of at least 15%-20% (pre-acquisition). We are assuming that post-acquisition the earnings will be increased up to RM28m per annum per vessel.

25% Placement. The Group intends to place out up to 25% of the issued and paid-up share capital which as at 31 July 2014 (excluding 1000 Daya shares held as treasury shares is RM138.8, comprising 1.4bn Daya shares). The maximum number of shares to be issued under the placement would be c.347.2m shares. The issue price will be determined at a later date.

Rights issue and warrants, will raise gross proceeds of RM230m before the exercise of warrants. The rights shares and issue price have not been fixed, and is subject to the Board. The warrants will be issued free, based on the respective entitlement to the rights issue. The basis of issuance for the warrants has been fixed at 1 warrant for every 2 rights shares subscribed.

Bonds issue. Issuance of <RM120m in nominal value of bonds via a private placement. The bonds are convertible in full or in part into fully paid new Daya shares at the option of the conversion period.

Source: PublicInvest Research - 25 Aug 2014