WCE Holdings Bhd’s cash call, consisting of a rights issue of redeemable convertible preference shares (RCPS) with free warrants, gets a notable mention for its innovative structure that struck a chord with investors. It was oversubscribed by 19.21%.

The exercise, completed on Nov 25 upon the listing of the RCPS with warrants, raised gross proceeds of RM481.31 million — the second highest amount raised for rights issues undertaken and completed by Malaysian public-listed companies this year.

RHB Investment Bank Bhd was the principal adviser and a joint underwriter for the exercise.

WCE is the concessionare of the West Coast Expressway. The funds it raised were meant to support the expressway’s additional costs. Earlier this month, WCE chairman Datuk Hamzah Hasan said construction work on the expressway was 71% completed. It had been open to motorists in stretches since May.

Under the exercise, it offered 2.005 billion new RCPS at an issue price of 24 sen each, together with 501.37 million free warrants, on the basis of two RCPS for every one WCE share held on Oct 24, with one free warrant for every four RCPS subscribed for.

The RCPS’s issue price represented a 52.63% discount to WCE’s five-day volume weighted average market price of 50.66 sen up to, and including, the market day immediately preceding the price-fixing date — making subscription of the RCPS attractive.

The deal was structured in such a way to allow WCE to raise additional funds for the expressway, even after the completion of the exercise. The conversion period for RCPS holders is two years.

The conversion price of the RCPS under Option 1, which is a cash top-up option (see table) was priced lower than Option 2 (a non-cash top-up option) to make it more attractive for the holders of the RCPS to convert under the first option. The conversion price under Option 1 was 28 sen, while the other was 32 sen.

Similarly, the exercise price of the warrants during the first exercise period (from Year 1 to 5), at 39 sen, is priced lower than that of the second exercise period’s 45 sen (Year 6 to 10), to encourage the holders to exercise the warrants during the first period.

What is positive about the exercise is that it will not have an immediate dilutive effect on WCE’s earnings per share — as would have been the case had there been an issuance of new WCE shares — given that the conversion of the RCPS and exercise of the warrants are to be done over a period of time.

Interestingly, WCE had initially intended the fundraising exercise to be a rights issue of redeemable convertible unsecured loan stocks, or RCULS, with free warrants. That was the exercise it proposed in March last year.

However, later in November, it changed it to RCPS with warrants after noticing that its share price had been declining after the RCULS announcements.

The exercise had the full support of its key shareholders IJM Corp Bhd, MWE Holdings Sdn Bhd and United Frontiers Holdings Ltd. They agreed in May to subscribe in full for their respective entitlements and to apply for any excess, such that total proceeds raised from their subscription did not exceed 80% of the actual proceeds to be raised. That undertaking indicated their confidence and commitment towards the company’s future prospects.

The West Coast Expressway involves the development of 233km of tolled highway from Banting, Selangor, to Taiping, Perak. Upon commencement of toll collection, the project is expected to enhance WCE’s financial performance.

Main Market-listed WCE made a net loss of RM8.5 million in the second financial quarter ended Sept 30, 2019, compared with a net profit of RM1.44 million a year ago, mainly due to the recognition of RM14 million in interest expense in respect of the financing cost for the completed sections of the expressway which are opened to traffic.

Revenue however grew to RM228.55 million from RM189.43 million. For the first six months, net profit stood at RM725,000 compared with RM10.71 million in the same period a year ago

Since the exercise was completed, its share price has been trading at an average of 33.9 sen.