KUALA LUMPUR (Jan 24): Loss-making Kumpulan Jetson Bhd has proposed to undertake a share capital reduction (SCR) as well as a private placement exercise to partially fund the acquisition of majority ownership in Melaka property developer Magical Era (M) Sdn Bhd (MESB).

The SCR will entail the reduction and cancellation of RM90 million issued share capital which will be used to eliminate the group's accumulated losses.

Based on its unaudited financial statements for the nine-month period ended Sept 30, 2023, the credit arising from the SCR will eliminate its accumulated losses of RM72.5 million, resulting in retained earnings of RM16.74 million.

Kumpulan Jetson said the balance credit will be used in a manner its board deems fit and in the best interest of the company.

As a result of the SCR, its issued share capital will be slashed to RM33.32 million from RM123.32 million currently.

According to Kumpulan Jetson, the proposed SCR is to enhance the group’s credibility with bankers, customers, suppliers and investors due to an improved financial standing, as well as facilitate the declaration of dividends in the event the company has retained earnings in the future.

Meanwhile, Kumpulan Jetson also plans to undertake a private placement exercise of up to 107.19 million shares — 40% of its 267.97 million share base — to partially fund the acquisition of a majority stake in MESB, to fund infrastructure works for land development, as well as for working capital.

Based on an illustrative price of 19.59 sen — 19.89% discount to Kumpulan Jetson shares’ five-day volume-weighted average price of 24.48 sen — the cash call is expected to raise RM20.998 million.

The bulk of the proceeds, amounting to RM10.2 million, will go towards partially funding a RM25.5 million acquisition of the 51% stake in MESB. Kumpulan Jetson entered into a conditional share sale agreement with MESB’s sole director and shareholder Datuk Seri Baljinder Singh Surinder Singh on Wednesday for the acquisition.

The RM25.5 million purchase consideration is to be satisfied via RM15.3 million cash and issuance of 41.67 million new Kumpulan Jetson shares at an issue price of 24.48 sen apiece — amounting to RM10.2 million.

According to Kumpulan Jetson, the RM25.5 million purchase consideration for the 51% stake in MESB was reached based on MESB’s RM53.07 million net assets as at end-November 2023 and a mutually agreed discount of RM1.56 million.

In acquiring the 51% stake in MESB, Kumpulan Jetson plans to conduct infrastructure works — earthworks, excavation, roadworks construction, water supply, sewerage systems, and electrical and telecommunication supply — on a 256,742 sq m land in Alor Gajah, Melaka, owned by the property developer.

Kumpulan Jetson has earmarked RM7.62 million of the private placement proceeds for the infrastructure work costs, while Baljinder will fund the other 49% of the total budgeted infrastructure works.

In the future, Kumpulan Jetson plans to sell the land as a whole or by plots at a premium to prospective buyers.  

“The Alor Gajah Land is strategically located within the Vendor City (a 337.50-acre developable area with plans for light and medium industrial lots, commercial shop offices, institution and public facilities) and surrounded by a mixture of residential, commercial and industrial development,” the group said.

“With matured industrial support and operations of large- and medium-scale industries operating in the Alor Gajah industrial area located nearby, the board is optimistic that Vendor City will be sought after as the next industrial hub in Alor Gajah, Melaka,” it added.

Touching on the remainder of private placement proceeds, Kumpulan Jetson said RM2.42 million will be used for working capital, while another RM767,000 will be used for the proposals’ estimated expenses.

Post-SCR, private placement, and share issuance to satisfy the acquisition’s purchase consideration, Kumpulan Jetson’s enlarged share base will stand at 416.82 million (from 267.97 million currently), while its enlarged issue share capital will stand at RM64.52 million (from RM123.32 million currently).

Based on back-of-the-envelope calculations, the MESB acquisition will see Baljinder emerge as a substantial shareholder of Kumpulan Jetson with a 10% stake based on the aforementioned enlarged share base.

Currently, Kumpulan Jetson's sole substantial shareholder and largest shareholder is former executive chairman Datuk Teh Kian An with a 10.26% stake — which will be diluted to 6.6% post-proposals.

Kumpulan Jetson said the proposed SCR, private placement, and acquisition are expected to be completed in the second quarter of 2024 (2Q2024).

The group has also proposed an employees’ share option scheme (ESOS) of up to 15% of its share base during the scheme’s five-year enforcement period, which is also expected to be implemented in 2Q2024.

The ESOS will entail another 62.52 million new Kumpulan Jetson shares to be issued and RM13.78 million added to its share capital — assuming full exercise of ESOS options and an option price of 22.04 sen.

Shares in Kumpulan Jetson closed half a sen or 2% higher at 25.5 sen, giving the company a market capitalisation of RM67.02 million.