SIME is considering a proposal to raise up to RM6bn through a rights issue as the group seeks to cut down its RM18bn debts by a third. The fund raising plan is proposed by several banks pitching for the job and the report quoted sources as saying that if SIME agrees to the plan, the exercise could be implemented by the end of the year. (Source: StarBiz)

Comments: Considering its high gearing following the acquisition of NBPOL and the delay in the listing of its motor business, it is logical for the group to weigh various alternatives to raise funds to reduce gearing and prevent any downgrade of its debt ratings.

We are however not aware of the rights issue plan by SIME. The above press report seems to imply a rights issue in the region of 1-for-8. The potential dilution should be proportionate but preventing a debt rating downgrade is positive. We maintain our HOLD rating for SIME with a target price of RM8.28 pending the release of its 4QFY15 results on Wednesday.

Source: Affin Hwang Capital Research - 24 Aug 2015