KUALA LUMPUR (July 10): The Human Resource Development Fund (HRDF) has acquired Widad Group Bhd (KL:WIDAD) shares, which tanked from 62 sen to six sen, under a put and call option arrangement (PCOA), according to the briefing notes on the findings by the National Audit Department on Tuesday.
The HRDF initially acquired Widad shares under the PCOA on Oct 15, 2020, when the entry price was 62 sen per share, according to the findings.
The put options are exercisable during the period of 30 days after the one year anniversary of the company’s purchase, while the call options are exercisable anytime for a period of one year. The put option lapses upon exercise of the call options, and vice versa, according to HRDF’s Annual Report 2023.
A put option is a contract to sell a certain stock at a specified price by a specified deadline, while a call option grants the right to buy a stock at a pre-determined price by a certain date.
Executed alongside an initial share sale agreement, the PCOA included a moratorium from Oct 15, 2020 to Oct 14, 2021. The agreement was renewed on Oct 12, 2021, extending the moratorium until Nov 30, 2022, following approval in an investment panel meeting.
Complications arose on Nov 30, 2022, when the investment panel committee rejected a proposal for a second renewal of the agreement, citing Widad’s failure to pay the agreed premium on the investment.
Widad appealed on Feb 8, 2023, agreeing to HRDF to purchase additional shares at no charge to average down the cost, while committing to premium payments via installments.
The investment panel committee then overturned its previous decision in a special meeting on April 5, 2023, and approved the second renewal of the PCOA for one year, spanning Dec 1, 2022, to Nov 30, 2023.
The Minister of Finance (MOF) subsequently approved the renewal on Oct 16, 2023, setting a renewal price of 54 sen, down from the initial entry cost of 62 sen. The renewal was formalised on Nov 30, 2023.
However, Widad’s stock took a drastic turn on Jan 18, 2024, when its share price plunged from 49 sen to 26 sen, prompting an unusual market activity query by Bursa Malaysia to the company.
On its part, Widad had replied to Bursa Malaysia that the company is discussing several unspecified business proposals. Other than the discussions, which are at its preliminary stages, Widad added that it has no idea what could be behind the unusual trading activity.
However, the sharp decline in Widad’s share price severely affected HRDF’s investment, raising alarms about the viability of long-term returns.
The HRDF reviewed the investment portfolio status in an investment panel meeting on March 14, 2024, noting the concerning developments.
A letter was dispatched on March 19, 2024 to Widad, seeking resolution on the outstanding amount from the PCOA agreements.
Widad responded on April 3, 2024, with a request for an extension of the payment deadline to Sept 30, 2024. This leaves HRDF in a precarious position, waiting for more clarity on the outstanding financial obligations.
HRDF’s initial investment, designed to capitalise on Widad Group’s growth prospects, now faces considerable challenges with the stock now trading at six sen.
At Wednesday’s closing bell, shares of Widad rose half a sen or 9.09% to six sen, valuing the group at RM170.3 million. The counter has plunged over 87% since the start of this year.