• Rights issue to raise US$150m
• CB issue to raise US$150m too
• Downgrade to SELL

To undertake rights issue first

Ezra Holdings has proposed a renounceable rights issue of up to 2.02b new shares at an issue price at a discount of not more than 50% to the theoretical ex-rights price for each rights share, on the basis of up to 200 rights shares for every 100 existing ordinary shares, as at a books closure date to be determined by the directors of the company. As at 25 May 2015, Mr. Lee Kian Soo and Mr. Lionel Lee held ~24.7% of the existing share capital of Ezra. They have undertaken to fully subscribe for the rights issue. The remaining 75.3% will be fully underwritten by Credit Suisse and DBS. Estimated gross and net proceeds of the rights issue are US$150m and US$145.3m, respectively.

Next, convertible bonds

Ezra has also proposed an issue of fixed rate convertible bonds due 2020 with an aggregate principal amount of up to S$200m (~US$150m), convertible into new shares at a conversion price to be determined. The conversion price will be at a premium of at least 15.0% to the last closing price of Ezra’s shares on a “price fixing date” to be determined later, and rounded down to the nearest whole multiple of 0.5 cents. The convertible bonds issue is expected to take place after the pricing of the rights issue.

Estimated net proceeds of US$289.5m

An EGM will be convened to seek shareholders’ approval for both the rights and bonds issues. Total gross and estimated net proceeds are US$300m and US$289.5m, respectively; Ezra plans to use 62% of the gross proceeds to repay S$225m of fixed rate notes due in Sep this year, and 35% for repayment of S$150m worth of perpetual securities. The market has already been expecting potential fundraising moves by Ezra, given its upcoming financial obligations. In our SOTP valuation, we assume that the maximum 2.02b new shares are issued in the rights issue, and as such lower our fair value estimate from S$0.47 to S$0.26 due to the dilutive effect. Downgrade to SELL on valuation grounds.

Source: OCBC Research - 3 Jun 2015