SP Setia has proposed to raise up to RM1.18bn via a renounceable rights issue of new class-C Islamic Redeemable Convertible Preference Shares (RCPS-I C). Actual capital outlay required by entitled shareholders to fully subscribe for their entitlements under the proposed rights issue will depend on the actual entitlement basis and the issue price for the RCPS-i C to be determined later. We understand that the cash call is in line with the Group’s de-gearing initiatives and is planned at optimizing the Group’s capital structure. Upon completion of the cash call, it intends to utilise the funds to redeem RCPS-i B (RM809.1m under maximum scenario) and payment of existing bank loans and financing facility amounting to RM365.7m. We understand that the exercise will potentially yield annual gross interest/profit savings of RM13.4m. Pending the fixing of the entitlement basis for the proposed rights issue and the issue price of the RCPS-i C, we maintain our Neutral call with TP unchanged at RM1.40, pegged at c.70% discount to RNAV.

• Optimizing capital structure. We understand that the proposed rights issue is mainly to raise gross proceeds to finance the redemption of all the outstanding RCPS-i B which were issued on 29 December 2017 and bears a preferential dividend rate of 5.93%. In addition, based on the terms of the RCPS-i B, an additional step-up preferential dividend rate of 1.0% per annum above the expected preferential dividend rate of 5.93% per annum will commence from 29 December 2022 onwards until the redemption date. Meanwhile, the new RCPS-i C is expected to have a preferential dividend rate of 5.43% per annum. In the event the cash call fails to raise sufficient funds, SP Setia will fund the remaining balance required to fully redeem the outstanding RCPS-i B using its internal funds. To recap, the RCPS-i B were issued in conjunction with the company’s rights issue exercise in 2017 which raised gross proceeds of RM2.13bn to among others, part-finance the I&P acquisition, and part finance property development costs of new and on going projects of the enlarged Group.

• Eyeing RM4.0bn in FY22. The Group has set a higher FY22 sales target of RM4.0bn, or about 5% higher than the original FY21 sales target of RM3.8bn. Pipeline launches of c.RM4.0bn will again focus primarily on landed residential projects in Setia Alam, Setia Eco Glades, Setia Safiro, Setia Alam Impian, Bandar Kinrara, Setia Bayuemas, Setia Ecohill & Ecohill 2, Setia Eco Park and Setia Warisan Tropika in the Central region; Setia Indah, Taman Rinting and Taman Pelangi Indah in the Southern region and Setia Fontaines in the Northern region. Unbilled sales is healthy at RM10.2bn.

Source: PublicInvest Research - 28 Apr 2022