This article first appeared in The Edge Malaysia Weekly on January 27, 2025 - February 2, 2025

Last Thursday, YTL Power International Bhd (KL:YTLPOWR) announced a proposal for a bonus issue of warrants on the basis of one warrant for every five existing shares held. The exercise price of the warrants, which have a three-year tenure, has been fixed at RM2.45 — a 44% discount to its five-day volume-weighted average price.

Being the controlling shareholder of YTL Power with a 54.84% stake, YTL Corp Bhd (KL:YTL) also proposed a similar exercise to raise RM3.3 billion to be able to exercise the YTL Power warrants. The exercise price of YTL Corp’s warrants is pegged at RM1.50.

YTL Corp will be entitled to 900.52 million YTL Power warrants. The conglomerate will need roughly RM2.2 billion cash to exercise the warrants, according to the filing with Bursa Malaysia.

The Yeoh family, which owns nearly 50% of YTL Corp and 10% of YTL Power, will have to have an estimated RM2.1 billion to exercise the warrants.

The free warrants given by the two companies are non-tradable, which fund managers say is a major flaw in the fundraising exercise.

Judging by the steep fall in the share prices of the two companies, the cash call did not go down well with shareholders, even though analysts and fund managers were generally positive on the move. Some analysts commented that the fundraising exercise would allow shareholders to have flexibility in terms of participating in the cash call.

The share prices of both YTL Corp and YTL Power tumbled 10.9%, or 26 sen and 44 sen, to close at RM2.12 and RM3.61 respectively. The gap between the exercise price and the market price has narrowed after the drop, but it is still around 30%.

It is apparent that the bonus issue of warrants are cash calls. However, shareholders, including the Yeoh family, will have three years to fulfil their commitments. In short, they could pace the exercise of the warrants over three years. It is different from a rights issue in which shareholders would need to fork out a lump sum immediately.

On the other hand, the flexibility will result in a share overhang over the next three years and that will put a lid on the share prices of both companies.

Having said that, the ball is now in the shareholders’ court as their approval is required for the fundraising exercise.

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