KUALA LUMPUR: K-Star Sports Ltd is proposing to place out 30% of its issued shares to its substantial shareholder and third-party investors to raise up to RM5.71 million to fund its footwear business.

In a filing with Bursa Malaysia, K-Star said RM3.5 million of the proceeds will be used to finance the production costs for footwear, including purchases of raw materials and payment of labour costs in light of the higher volume of orders.

The group said it received a higher forecast order of 500,000 to 600,000 pairs of footwear for the next 12 months, compared with the average order size of about 450,000 per annum in the last four financial years.

This, it said, is due to the business expansion by its original equipment manufacturer customer in China.

Of the 87.91 million shares to be placed out, 50% will be go to Datin Tan Siew Ching while the remaining half will be offered to third party investors to be identified at a later date.

Tan, who is the second largest shareholder of the group according to its annual report, is also the chairperson and executive director of JAG Bhd.

As at Oct 10, Tan holds 26.5 million shares, representing a 9% direct interest in the group.

K-Star has yet to fix the issue price of the placement shares. However, it said the price will not be at a discount of over 10% to the five-day volume weighted average price (VWAP) immediately prior to the price-fixing date, and will not be lower than 6.5 sen per placement share.

Subsequently, the group is planning an issuance of up to 152.38 million free warrants on the basis of two warrants for every five existing K-Star shares held on an entitlement date to be determined later.

The exercise price of the warrants has been fixed at eight sen, which represents a premium of approximately 23.1% to the five-day VWAP of K-Star shares of 6.5 sen up to and including Oct 10.

The gross proceeds to be raised upon full exercise of all the warrants will be approximately RM12.2 million, said K-Star, and will be used for its working capital requirements including the production costs for footwear, selling and administrative expenses.

Meanwhile, the group is planning to diversify into the construction business via its wholly-owned subsidiary Sinaran Trilion Sdn Bhd (STSB). STSB recently secured a project from Majuvera Construction Sdn Bhd to undertake foundation works for 60 power transmission line towers in Seremban for a contract value of about RM1.5 million.

“In addition, STSB is in the midst of discussions with other parties to tender and/or secure other projects, but nothing has been finalised at this juncture. It is envisaged that STSB will secure more projects which may contribute more than 25% of the group’s net profits in the future,” K-Star said.

K-Star said the proposed exercises are expected to be completed by the second quarter of 2018.

Shares in K-Star closed one sen or 7.7% higher at seven sen, giving the group a market capitalisation of RM20.51 million.