Raffles Education has announced the placement of 80m new shares at S$0.381 to raise net proceeds of S$30.1m, which will be used to repay its bank borrowings. The placement represents a dilution of 3.41% based on the existing 2.35bn shares outstanding.
As of end 2Q09, its total current borrowings was S$175.5m.
The placement is likely a response to the lower than expected take up rate for its scrip dividend scheme. Previously, the company was guiding for a 80% take up rate but the weakness in the stock price led to a take up rate of only 51%.
With FY09 core net profit of around S$100+m, it appears that the company has chosen to do the placement now in case of lower than expected scrip dividend take up rate in FY09. With the placement, we think that its likely that the company will continue its approx. 80% payout ratio.
I do not expect core earnings to significantly impacted as the dilution will be offset by decline in interest expense.
Following the placement, Raffles Education will have 2425,499,156 shares on issue. At yesterday’s 40.5 cents, the market cap will be $982.33 mln.
The exercise will raise $30.1 mln, which approximates the investment-to-date Raffles has made in 29.9% owned associate Oriental Century since Dec’06, as disclosed on March 10th, when doubts were raised on Oriental’s cash balance. Raffles had also estimated worst-case write-down at $34.6 mln.
Raffles Education and Oriental Century share a common director in Prof Tan Teck Meng.
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