This article first appeared in The Edge Malaysia Weekly on September 16, 2024 - September 22, 2024

On Sept 8, Bernama published an article titled, “Investors should participate in OCR Group rights issue, rewarding shareholders with 60% margin — academician” on its website. There was a disclaimer at the bottom of the article that said it was a paid advertorial.

Essentially, the article was promoting OCR Group Bhd’s (KL:OCR) cash call, highlighting a 30% discount and potential 60% returns through free warrants.

Loss-making OCR is undertaking a renounceable rights issue of up to 1.34 billion new rights shares at 3.5 sen each, with an equal number of free detachable warrants. Shareholders can subscribe for two rights shares and two warrants for every three shares held.

The article encouraged investors to participate in the rights issue and even had a senior financial lecturer from Universiti Teknologi MARA to explain why they should do so.

“It’s all about simple arithmetic whereby the rights issue offer price of 3.5 sen entails a 30% discount to OCR’s current share price of five sen. Two free warrants come with every two rights shares. One can conservatively expect the warrant price to be listed at 1.5 sen. The investor could reap a 30% or 1.5 sen off one rights issue share discount, in addition to a further 1.5 sen from the free warrant — all for a total 60% discount, or three sen,” he said.

The advertorial seems to be an unprecedented move by a listed company encouraging its shareholders to subscribe for the rights issue. However, investors have to be mindful of the risks, such as the company’s prospects and financials. OCR’s accumulated losses amounted to RM79.99 million as at end-June. 

It is worth noting that OCR’s share price had risen from five sen on Sept 6 to close at six sen last Friday. The company in August issued some 618.5 million new shares at seven sen per share for the settlement of advances amounting to RM43.30 million owing by Stack Builder Sdn Bhd, a 50.5%-owned subsidiary, to Ong Kah Hoe and Tan Chin Hoong. The shares issued were equivalent to roughly 30% of OCR’s issued share capital. 

The two are now the largest shareholders. Tan has already started selling shares. On Aug 12, he sold 26.67 million shares. 

Investors should exercise caution. It is crucial to seek licensed investment advice instead of relying on selective advertorials. Assessing OCR’s long-term fundamentals is important before participating in the rights issue.

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