CSE proposes renounceable rights issue to raise S$33.4m to fund potential acquisitions
- A full subscription of the rights issue would raise gross proceeds of S$33.8m and net proceeds of S$33.4m.
- Irrevocable undertaking and expressions of intention for 28% of the rights by some directors and substantial shareholders is a display of confidence in the company
- 90% of proceeds will be used to fund potential synergistic acquisitions and 10% will be used to repay loans
- We currently have a HOLD call with TP S$0.45 and ex rights TP will be S$0.38, assuming a full subscription of the rights issue.
A full subscription of the rights issue would raise gross proceeds of S$33.8m and net proceeds of S$33.4m. Up to 102,480,337 rights will be issued at S$0.33 which represents a 20.5% discount to the last transacted price of S$0.415 and 17.7% discount to the theoretical ex-rights price of S$0.401. Shareholders can subscribe to 1 rights share for every 5 ordinary shares, which amounts to 20% of CSE’s existing issued share capital.
Irrevocable undertaking and expressions of intention for 28% of the rights by some directors and substantial shareholders is a display of confidence in the company. Some directors of CSE (Lim Boon Kheng, Lim Ming Seong, and Tan Chian Khong) have given an irrevocable undertaking to subscribe for the full rights which highlights their confidence in the company. Orchid 2 Investments, and Orchid 3 Investments VCC also intends to subscribe to their pro rata rights. The combined subscription of the undertaking shareholders and Orchid entities amount to 28,884,587 rights shares with gross proceeds S$9.5m.
90% of proceeds will be used to fund potential synergistic acquisitions and 10% will be used to repay loans. CSE intends to use 90% of the proceeds from the rights for potential acquisitions of communications businesses in USA and New Zealand. In particular, CSE is looking at acquisitions in relation to radio and critical communications which aligns to its strategy to grow its Infrastructure segment. The remaining 10% will be used to repay loans for previous acquisitions.
Outlook is still promising with the exception of large greenfield projects in the traditional energy sector. The flow business is still in recovery mode which should help to mitigate lower contributions from large greenfield projects. Outlook for the infrastructure and mining and minerals segment remains supported by a steady flow of projects. Moreover, structural trends such as digitalization which requires increased connectivity and security will continue to be a key driver for CSE’s infrastructure segment. We believe that 2H22/FY23 could be brighter on the backloading of recent contract wins in view of the supply chain disruptions.
We currently have a HOLD call with TP S$0.45 and ex rights TP will be S$0.38, assuming a full subscription of the rights issue.