The Proposed Regularisation Plan by E.A. Technique (M) Berhad (EATECH) aims to address the company's status as a Practice Note 17 (PN17) entity. The plan involves a proposed share consolidation and a shares issuance to raise the required funds to support the restructuring of the company. The announcement was made in compliance with the requirements under Paragraph 4.2 of PN17. This article will provide an overview of the proposed regularisation plan, including its details, rationale, and potential impact on the company and its shareholders.
The Proposed Share Consolidation is a plan to consolidate every 15 EATECH Shares into one Consolidated Share. This means that if an investor owns 15 EATECH Shares, they will be consolidated into one Consolidated Share. This will reduce the number of Shares available in the market, and as a result, the trading prices of the Shares will be adjusted accordingly in proportion to the basis of the Proposed Share Consolidation.
The impact of the Proposed Share Consolidation on investors will depend on their individual positions. For those who own fewer than 15 Shares, their Shares will be consolidated into a fraction of a Consolidated Share, which will be disregarded and/or dealt with by the Board in a manner that it deems fit. For those who own 15 or more Shares, their Shares will be consolidated into one Consolidated Share.
It is important for investors to note that while the Proposed Share Consolidation will result in a reduction in the number of Shares available in the market, the value of their overall investment in EATECH should not be affected. The consolidation of Shares does not change the value of the company, but rather reduces the number of outstanding Shares, which should result in an increase in the value of each individual Share.
Therefore, investors are advised to trade cautiously and to take into account the adjusted trading prices of the Shares resulting from the Proposed Share Consolidation to prevent overselling of their position in respect of their Shares.
This section talks about the adjustment in the reference price of EATECH shares listed and quoted on the Main Market of Bursa Securities after the Proposed Share Consolidation. The theoretical adjusted reference price is calculated based on the last transacted market price of the Shares as at LPD and the number of shares before and after the consolidation.
For example, if the last transacted market price of EATECH Shares as at LPD is RM0.3550 and the Proposed Share Consolidation results in the consolidation of 15 EATECH Shares into 1 Consolidated Share, then the theoretical adjusted reference price of EATECH Shares upon completion of the consolidation would be RM5.3250 per share.
The impact on investors is that the reference price of the shares will be adjusted after the consolidation, and the number of shares available in the market will be reduced. However, the value of their investment in the company will remain the same, as the value of their total shares will be consolidated into a smaller number of shares with a higher theoretical adjusted reference price.
After the Proposed Share Consolidation, the Consolidated Shares will rank equally with each other, and there will be no trading suspension on the Main Market of Bursa Securities. The Consolidated Shares will be allotted to entitled shareholders on the Entitlement Date, and will be quoted and listed on the Main Market of Bursa Securities together with the Subscription Shares. The notices of allotment will be issued and despatched to the entitled shareholders within 4 market days after the listing and quotation of the Consolidated Shares.
The Proposed Shares Issuance will involve the issuance of up to 53,050,000 Subscription Shares to subscribers, which represents about 60.0% of the enlarged share capital after the completion of the Proposed Shares Issuance. This means that upon completion of the Proposed Shares Issuance, the issued share capital of EATECH will increase from 35,366,666 EATECH Shares to 88,416,666 Shares. The purpose of this issuance is to procure investors to raise the necessary funding for the purposes set out in Section 4 of the announcement.
It is important to note that the Proposed Shares Issuance was initially proposed after EATECH received an offer of up to RM50.0 million from Tan Sri Abdul Rashid Bin Abdul Manaf (“Tan Sri Rashid”) for a 50% equity stake in EATECH to support EATECH’s restructuring. After further negotiations, Tan Sri Rashid was agreeable to subscribe for 53% equity stake in EATECH, amounting to up to RM60.0 million.
The Proposed Shares Issuance will allow up to 53,050,000 Subscription Shares to be issued to Subscribers at a price of RM1.131 per share. The Subscription Shares represent approximately 60% of the enlarged share capital of EATECH after the completion of the Proposed Shares Issuance. The Subscription Agreements were entered into on 13 March 2023, and the Subscribers have confirmed that they have sufficient financial resources to fulfill their commitment to subscribe for the Subscription Shares. The Subscription Agreements' key terms are outlined in Appendix I of the Announcement.
As of LPD, the shareholders and directors of EOSSB include Tan Sri Rashid, Azree Rashid, and Azril Rashid. As of LPD, EOSSB has not commenced operations and recorded a loss after tax of RM1,746 with net liabilities of RM202,341. EOSSB has been nominated by Tan Sri Rashid to subscribe for 46,860,833 Subscription Shares in relation to the Proposed Shares Issuance.
The Subscription Price of RM1.131 per Subscription Share was negotiated and determined by the Company after taking into consideration several factors such as EATECH's funding requirements, the 5-day volume-weighted average price (VWAP) of EATECH shares up to 28 February 2023, and EATECH's unaudited consolidated net assets. The Subscription Shares represent a discount to the adjusted reference price computed based on EATECH's historical VWAP up to LPD. However, the Board considers the Subscription Price to be reasonable as it is premised on the illustrative net asset value per share and enables EATECH to procure the interest and commitment of the Subscribers, especially Tan Sri Rashid, to raise the necessary funds for the purposes set out in Section 4 of the Announcement. It is important to note that potential investors in EATECH should be aware of the risks of investing in a PN17 entity.
Upon issuance, the subscription shares will carry the same rights and rank equally with the existing EATECH shares, except for entitlement to dividends, rights, allotments, and other distributions declared before the issuance date. An application will be made to Bursa Securities for the listing and quotation of the subscription shares.
Upon completion of the proposed shares issuance, Tan Sri Rashid will become an indirect controlling shareholder of EATECH through EOSSB, which will hold 53% of the total enlarged number of issued shares. This will trigger a mandatory general offer (MGO) for the remaining EATECH shares not owned by Tan Sri Rashid, EOSSB, and persons acting in concert with them. The MGO will be unconditional as to acceptances, and its terms and conditions will be outlined in an offer document to be despatched to shareholders within 21 days from the date of the notice of the MGO.
The Ultimate Offeror and Offeror intend to maintain the listing status of EATECH upon completion of the MGO and have obtained undertakings from Sindora Berhad and Kulim (Malaysia) Berhad, representing a total of 52.48% of the total number of issued shares in EATECH, not to accept the MGO. The Board will appoint an independent adviser to provide comments, opinions, information, and recommendations on the MGO in an independent advice circular to advise the non-interested directors of EATECH and the holders of Offer Shares in respect of the MGO.
The company plans to use the expected proceeds of RM60.0 million from the Proposed Shares Issuance as follows:
1. Repayment pursuant to the SOA: RM32.0 million will be used to settle the balance amount due to scheme creditors pursuant to the SOA.
2. Repayment to Sindora: RM26.0 million will be used to repay Sindora, with the balance debt of RM15.3 million to be settled over a 3-year term.
3. Defray estimated expenses: RM2.0 million will be used to cover estimated expenses for the Proposed Regularisation Plan, including professional fees, fees payable to relevant authorities, printing, despatch, meeting expenses and miscellaneous expenses.
Any deviation in actual expenses for the Proposed Regularisation Plan will be used for general working capital of the Group.
Pending the utilisation of proceeds from the Proposed Shares Issuance, the proceeds would be placed as deposits with licensed financial institutions or short-term money market instruments, as the Board deems fit. The Company proposes to utilise such interest/profits arising from the deposits/financial instruments for working capital purposes over a period of 24 months from the date of receipt of the proceeds.
The rationale for the Proposed Regularisation Plan is to address the PN17 status of EATECH and improve the financial condition of the Group. The Board believes that upon completion of the plan, the Group will be able to meet the criteria to uplift itself from being classified as a PN17 entity. This will provide confidence to the Group's stakeholders, such as its shareholders, clients, financiers, and employees. The plan is intended to improve the Group's financials and turnaround its operations, and should bode well for the Group's future prospects.
The Proposed Shares Consolidation is aimed at improving EATECH's capital structure by reducing the number of shares in issuance while maintaining the same total value of shares prior to the consolidation. This is expected to increase the overall price range of EATECH shares and reduce volatility in the trading price of shares. The last transacted market price of EATECH shares as at LPD was RM0.3550 per share.
The Proposed Shares Issuance is an important part of the Proposed Regularisation Plan as it will allow EATECH to raise funds needed to settle its creditors under the SOA and to Sindora. The company has agreed to pay approximately RM77.1 million to its scheme creditors, of which RM32.0 million will be raised through the Proposed Shares Issuance. EATECH will settle RM26.0 million of the RM41.3 million owed to Sindora via the Proposed Shares Issuance and the balance in tranches over 3 years.
Once the debts owed to scheme creditors under the SOA are settled, EATECH is expected to recognize a one-off income of approximately RM133.5 million (net of deferred tax) resulting from the waiver of debts owed to the scheme creditors.
In addition to meeting the obligations under the SOA, the Proposed Shares Issuance will enable EATECH to address one of the prescribed criteria in accordance with Paragraph 2.1(a) of PN17. According to this criterion, EATECH's shareholders' equity on a consolidated basis should not be 25% or less of its share capital (excluding treasury shares) and shareholders' equity should be less than RM40 million.
The Proposed Regularisation Plan is expected to improve the financial condition of EATECH and ultimately lead to the company being uplifted from its PN17 status. The Proposed Shares Issuance is an integral part of the plan, as it will allow the company to raise the necessary funds to settle amounts owed under the SOA and to its major shareholder.
The company believes that the successful implementation of the Proposed Regularisation Plan and the SOA will provide confidence to its stakeholders. The emergence of a new controlling shareholder, Tan Sri Rashid, is expected to provide strategic direction for the company. However, existing shareholders should note that their earnings per share and existing shareholdings will be diluted as a result of the increase in the number of shares arising from the Proposed Shares Issuance.
More details on the effects of the Proposed Regularisation Plan on the net assets and gearing, as well as the earnings and earnings per share of the company, are provided in Section 8 of the proposal.
The Proposed Regularisation Plan is intended to regularise EATECH's financial condition and uplift its PN17 status. The plan includes a Shares Consolidation to improve the company's capital structure and a Shares Issuance to raise funds for settling debts owed to scheme creditors under the SOA and to its major shareholder. Upon completion of the plan and the SOA, EATECH is expected to significantly reduce its accumulated losses, rationalise its balance sheet, and improve its ability to retain profits and pay dividends in the future. While existing shareholders will experience dilution of their earnings per share and shareholdings, the Board believes that the improved capital base of the Group should boost stakeholders' confidence in EATECH's ability to generate positive cashflows and earnings moving forward.
In conclusion, EATECH appears to be taking several positive steps towards improving its financial condition and potentially increasing shareholder value. The sale of its Divestment Vessels as part of the Asset Disposal Program is expected to raise a portion of the funding required for the settlement of its scheme creditors under the SOA, and should result in significant cost savings in the form of maintenance and depreciation. Additionally, the appointment of Tan Sri Rashid as a new controlling shareholder is expected to provide the Group with strategic direction and boost stakeholder confidence.
In the near term, EATECH's share price may continue to experience volatility due to market uncertainties and the ongoing implementation of its financial restructuring initiatives. However, the positive steps being taken by the Group may provide some support to the share price.
It is my hope that the information provided in this article will be useful for all investors. My intention is simply to share information about a company that has the potential to bring profit to investors. Ultimately, any decision made is up to the individual.
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