This article first appeared in The Edge Malaysia Weekly on February 3, 2025 - February 9, 2025

Last October, Eonmetall Group Bhd (KL:EMETALL) undertook a placement of 10% of its share base or 27.7 million shares at 28.9 sen apiece, raising a little more than RM8 million, largely for working capital purposes.

Barely three months later, the steel product manufacturer is undertaking another placement. This time, it is 30% of its share base or 91.41 million shares at 26.5 sen each, looking to raise RM22.14 million. The proceeds will be used to repay borrowings and for its working capital needs, including the purchase of raw materials.

Things look bad as Eonmetall is looking at share placements as a means to acquire raw materials and working capital. Also, in a span of just a few months, its share base will increase by 40%, or put another way, minority shareholders’ ownership will be significantly diluted by these two placements.

Should Eonmetall consider an alternative fundraising route? Would a rights issue, where the company can raise cash directly from existing shareholders by giving them the option to buy new shares without any dilution, be a better approach?

It should be noted that the current placement being undertaken comes at a time when Eonmetall’s share price has been battered down and is at its lowest since mid-August 2020. Over the past year or so, the shares have shed more than 40% of their value.

While the company’s need for funds is understandable — considering that as at end-September last year, it had cash and cash equivalents of RM7.9 million, while its short-term debt commitments stood at RM116 million — there should be another way out for the company.

Interestingly, Eonmetall had RM183.98 million worth of inventories as at Sept 30, 2024. Could its funds be tied up in these?

For the nine months ended Sept 30, 2024, the company managed to generate a net profit of RM15.12 million on revenue of RM116.97 million. Nevertheless, it is anticipating its performance for the current financial year to be challenging due to the current global business environment.

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