KUALA LUMPUR (July 29): Last week, construction giant IJM Corp Bhd announced a plan to buy into troubled engineering outfit Pestech International Bhd, at a sharp discount.
The crux of the plan is for Pestech to issue 800 million shares to IJM at a price of 15.5 sen each for a total of RM124 million, which will make IJM the company’s largest shareholder with a 44.83% stake.
Pestech’s existing shareholders will be diluted, and current controlling shareholders Lim Ah Hock, who has a 32.9% stake, and Paul Lim Pay Chuan with 19.45% shareholding, will be diluted to collectively control 28.9% of the company’s enlarged share base.
What is also worth noting is that IJM’s entry at 15.5 sen is a 47.46% discount to Pestech’s trading price of 29.5 sen at the time of the offer, and about only 30% of Pestech’s net assets per share of 53.21 sen.
Is IJM getting a sweetheart deal from Pestech?
IJM has come forward to say that Pestech’s presence in about 20 countries, and the expertise it has garnered in rail electrification and signalling over the years make it an appealing prospect.
However, the considerably lower 15.5 sen offer by IJM could stem from Pestech’s own issues.
In January this year, Pestech’s top brass were investigated, and charged by the Malaysian Anti-Corruption Commission. While the charges were eventually dropped, the episode left Pestech in a bad light.
There was also a contract terminated by Syarikat Pembenaan Yeoh Teong Lay Sdn Bhd, a wholly owned unit of YTL Corp Bhd, for an award to Pestech involving the Gemas-Johor Bahru rail double tracking project.
Truth be told Pestech has had issues with a number of parties including Lion Pacific Sdn Bhd and Dhaya Maju Infrastructure (Asia) Sdn Bhd.
While IJM seems to be taking a risk seeking to buy into Pestech and rescue the company, will Pestech’s minority shareholders approve the share issuance at 15.5 sen or will they push for a better price? If IJM doesn’t buy into Pestech, what will become of the debt ridden company?
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