This article first appeared in The Edge Financial Daily, on January 19, 2016.

KUALA LUMPUR: Boustead Holdings Bhd is looking to raise up to RM1.05 billion via a two-for-five rights share issue to pare down its gearing, to fund its property development and property investment activities, and for working capital.

The group also proposed to give out two bonus shares for every five Boustead shares held after the proposed rights issue.

In a statement yesterday, Boustead said the issue price of the rights shares, which entail an issue of up to 413.67 million new shares, will be determined based on a discount of 30% to the theoretical ex-rights price, which will be based on the volume-weighted average market price of Boustead shares to be determined.

Its deputy chairman and group managing director Tan Sri Lodin Wok Kamaruddin said the cash call will help to improve Boustead’s financial flexibility and enhance its liquidity.

“We are confident that the attractive 30% discount to the theoretical ex-rights price offered through the proposed rights issue will resonate with astute investors,” said Lodin.

“The Boustead group has had a sterling track record in terms of dividend yields despite the headwinds in the market. A discount of this nature should factor in well with long-term investors, who are eyeing solid investment in a diversified conglomerate,” he added.

In a filing with Bursa Malaysia, Boustead said more than half of the proceeds from the rights issue, or RM507 million, will be used for property development activities. Breaking down this amount, RM300 million will be used for landbanking purposes, RM127 million to construct the Royale Chulan Cherating Pahang resort, RM50 million for construction activities of its property development business and the remaining RM30 million for development works on the Boustead Cruise Centre in Port Klang, Selangor.

Another RM486 million of the proceeds from the rights issue will be used to repay bank borrowings. As at Sept 30, 2015, the total outstanding bank borrowings of the group were at RM7.96 billion, which would be reduced to RM7.47 billion upon the completion of the proposed rights issue and the repayment of bank borrowings of RM486 million.

A total of RM55.9 million will be used for working capital, with the rest to fund expenses arising from the proposals.

Boustead’s share base will be nearly doubled to 2.03 billion after the rights issue and bonus issue, from 1.03 billion. It expects these exercises to be completed by the third quarter of this year.

Boustead also said it intends to seek undertakings from its parent Lembaga Tabung Angkatan Tentera, which owns 58.75% of the group, and Lodin, who has a 2.73% stake in Boustead, to subscribe in full to their entitlements under the rights issue.

Boustead shares fell five sen or 1.18% to close at RM4.19 yesterday, valuing them at RM4.38 billion.