Share Dilution

Short position – Vivocom, KNM, DNB

Vivocom arouses interest

WHEN investors buy shares of listed entities, it usually only gets into the news after the fact. And that too, only if the investor is a big household name.

If Warren Buffett’s Berkshire Hathaway were to become a significant shareholder in one of Malaysia’s large listed companies, it would be in the news, after the fact was revealed in the stock documents.

This is why the little-known Vivocom Intl Holdings Bhd filing this week is puzzling.

It is strange to file a case on a fund planning to buy shares in the company. Vivocom says it has signed an agreement with Strattner Alternative Credit Fund LP for the latter to invest up to $ 350 million (approximately RM 1.4 billion) in Vivocom shares. This is strange because this is a shareholder issue and not an operational issue, although Vivocom’s argument may be that the investment could raise funds for the company to embark on Mergers and Acquisitions.

It is even stranger that the amount the Strattner fund seeks to invest in Vivocom is more than three times its market capitalization.

That said, it should be noted that this agreement can be terminated by any party with 15 days notice.

Vivocom should not have waited until there is more certainty on the redemption of the Strattner fund? What is the hurry? The file indicates that the Strattner group is a listed company.

The checks reveal that it is listed on the US market over the counter or over the counter and that its main shareholders have addresses domiciled in Hong Kong.

There is also not a lot of information about the fund’s investment history.

Vivocom has had a checkered past since the company was listed on the stock market in 2005. Its share price has also been on a rollercoaster ride. The action saw a number of new parties emerge as shareholders trying to take the company in a new direction. His plans were largely unsuccessful.

KNM private placement

It is rare for the shareholders of a company to reject a fundraising proposal, but this is what happened at KNM Group Bhd.

The engineering firm has requested approval for a private placement in order to raise funds to ease its short-term finances.

KNM was seeking to issue 987.52 million new shares, equivalent to 30% of its issued share capital to selected investors. Perhaps the dilution was too much for its shareholders.

Also considering that there has been a significant increase in KNM’s share base over the past seven months.

This happened as a result of two recent private placement exercises, together with the subscription of certain employees to their stock option plans. The fresh capital was used as working capital and to pay off part of their debt, which currently stands at RM 1.33 billion.

While the proposed new 30% placement seems necessary to help the company with its debt and working capital during this pandemic, it seems the dilution issue was too big for shareholders, also given that the base d The company’s shares currently stand at 3.32 billion.

KNM was once a darling of the stock market, especially since it focused on the oil and gas industry during the latter’s boom days. But rapid global expansion, falling oil prices in 2014 and delayed projects, especially its Peterborough Waste-to-Energy Project, have left the company struggling.

This week also saw the resignation of four members of the board of directors on the eve of its annual general meeting. This included KNM’s largest shareholder and executive vice president, Gan Siew Liat.

Gan and KNM founder Lee Swee Eng (pictured below) own 12.91% of the company. Last year, Lee resigned. It is not known who is behind the wheel of KNM today and it could also end up being new owners replacing the old one. Either way, those in charge will have to find solutions to deal with the decline of the group’s activities and its debt problems.

Lee swee ingLee swee ing

High speed impact

DIGITAL Nasional Bhd’s (DNB) announcement of the deployment of the RM11bil 5G network has shown the intention of the government that it intends to deploy the high-speed network as quickly as possible. With the service set to roll out by the end of the year from Kuala In Lumpur, Putrajaya and Cyberjaya, the announcement of the 5G network rollout means people will start looking to upgrade their phones in due course.

But most important is the structure of the agreement. With 100,000 jobs expected to be created, this is certainly good news for a country struggling to contain the economic fallout from the pandemic.

A key paragraph of the statement read: “DNB has taken an approach whereby the design and construction of the national 5G network will be undertaken by Ericsson at a total cost of RM11bil, including tower rental and fiber rental. , of which over 60% is expected to benefit bumiputra and other Malaysian entrepreneurs over the next 10 years.

“Ericsson is committed to arranging funding for the provision, delivery and management of the entire 5G network.

“DNB will securitize future cash flows from its wholesale business through sukuk programs to fund all other network operating expenses and to repay all vendor finance agreements,” the statement said.

The structure of the deal also meant that the government would not shell out any money for the deployment of the network.

It will be funded through the securitization of future cash flows once DNB wholesales the service to network providers.

The other important element is the use of the existing towers.

This means that tower operators and fiber networks, which are currently dominated by telecommunications companies, will be the primary beneficiaries of the rollout of the 5G program.

There will still be questions such as whether there is a backup system that will be integrated into the grid, but the start looks promising with a number of local businesses and people standing to gain from the construction and upkeep. implementation of the project.

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