KUALA LUMPUR (July 14): Hengyuan Refining Company Bhd (KL:HENGYUAN) is planning to raise up to RM300 million through a renounceable rights issue that includes free detachable warrants to finance the purchase of crude oil.

The RM300 million target represents about 61% of the loss-making company's market capitalisation, which stood at RM495 million based on its closing price of RM1.65 on Monday (July 14).

In a bourse filing, Hengyuan said the proposed rights issue involves the issuance of up to 300 million new shares and 150 million free detachable warrants. This will be offered on the basis of one rights share for every existing share held, and one warrant for every two rights shares subscribed.

The issue price and entitlement date for the rights issue, along with the exercise price of the warrants, will be announced at a later date. The issue price for the rights shares is expected to be at a discount of 20% to 50% to the theoretical ex-rights price (TERP), which will be calculated based on the five-day volume-weighted average price (VWAP) up to June 30.

Up to RM300 million will be raised from the rights shares, based on an illustrative price of RM1. The proceeds are primarily earmarked for crude oil purchases to ensure a consistent and sufficient crude intake, to support optimal refinery utilisation and operating efficiency.

The exercise price of the warrants will be based on the TERP. Should the warrants be fully exercised, they could raise an additional RM211.5 million, based on an illustrative price of RM1.41 for the five-year warrants. Funds generated from the warrants are also intended for the company's working capital, potentially covering crude oil and refining additives purchases, as well as other manufacturing and operating expenses.

Malaysia Hengyuan International Ltd (MHIL), the company's controlling shareholder with a 51.02% stake, has provided a written irrevocable undertaking to subscribe for its full entitlement. MHIL has also committed to subscribing for additional rights shares to ensure the minimum proceeds target of RM155 million is met.

Under the minimum scenario, MHIL's stake in Hengyuan could increase to 67.71% after the proposed rights issue, and rise further to 72.41% upon the full exercise of the warrants. MHIL's stake will remain at 51.02% under the maximum scenario.

The cash call is subject to shareholder and regulatory approvals, with completion targeted for the third quarter of 2025. AmInvestment Bank has been appointed the principal adviser for this corporate exercise.

Hengyuan has been incurring losses in the last three years. Its net gearing — which rose to 1.2 times in its latest quarter — is the highest among its peers, Petronas Dagangan Bhd and Petron Malaysia Refining and Marketing Bhd, according to AskEdge. At the same time, its current ratio, which measures its ability to cover short-term liabilities, stands at 0.7 times, which is the lowest among its peers.

Hengyuan's share price closed four sen or 2.48% higher at RM1.65 on Monday. Year to date, the stock has seen a 23% decline.