• Rights issue price at S$0.15
• To bulk up balance sheet
• Uncertain outlook

Raising S$45m in net proceeds

Swiber Holdings (Swiber) has proposed a renounceable rights issue to raise gross proceeds of about S$45.9m (net proceeds S$45m) with the issue of 305.7m new shares on the basis of one rights share for every two existing ordinary shares. The issue price for each rights share is S$0.15, which is at a discount of about 49% to the last traded price of S$0.295 per share on 30 Dec, prior to the announcement.

Support from two major shareholders

Two major shareholders, Newshire Capital (12.6%) and Mr. Pang Yoke Min (10.3%), who collectively own ~22.9% of Swiber, have undertaken to subscribe for an aggregate of up to 152.8m rights shares (representing 50% of the maximum number of rights shares). Excess rights shares not validly subscribed for by other shareholders will be taken up by them, subject to a cap.

Mainly to strengthen balance sheet

Swiber states that the rationale for the rights issue is to strengthen its balance sheet and provide it with greater financial flexibility, as well as to increase the trading liquidity of its shares. We think the former is a more pertinent reason, and we note that almost of all the proceeds will be used for working capital such as payment of trade payables and general expenses. As of 30 Sep 2014, the group had US$1.225b of debt, of which ~30% was current. Net debt to equity stood at 1.7x vs 1.0x in 30 Sep 2013.

Stock is cheap for good reasons

Shares will trade ex-rights on 6 Jan 2015, and the expected date of issue of the rights shares will be on 4 Feb 2015. Meanwhile, Swiber’s share price has dropped by 29% since its 3Q14 results on 12 Nov to about S$0.27 currently. Though current share price valuations are low, we prefer to remain cautious due to 1) likely core net losses in FY14 and FY15, 2) uncertain order flows amidst a competitive and slowing industry, 3) accounts receivables that remain high, and 4) a steadily rising net gearing. Assuming that all the rights shares are taken up, our fair value estimate drops from S$0.34 to S$0.24 (based on 0.3x FY15 P/NTA). Maintain SELL.

Source: OCBC Research - 2 Jan 2015