Tranmil's debt restructuring exercise

Tranmil has proposed a debt restructuring scheme in which it offers to issue 243.818 million ordinary shares in exchange for the debt outstanding totaling RM536.3 million as at May 19th. The share will be valued at RM2.20, i.e. at a premium of 22.91% & 8.37% to the 5-day volume-weighted average market price ('VWAMP') and 1-month VWAMP of Tranmil shares up to May 2nd, respectively.

The impact on the Balance Sheet of this exercise (assuming full acceptance) will be to increase Tranmil's share capital from RM270.118 million to RM513.936 million; increase its NTA per share from RM1.57 to RM1.87; and, reduce its gearing from 1.87 times to a negligible level. On the P&L account, Tranmil could save on interest cost, which totaled RM9.32 million for the 1Q2008 ending 31/3/2008. This saving could help to reduce Tranmil's losses, which amounted to RM47.75 million in that quarter. As such, this restructuring scheme will only buy more time for Tranmil while its management works on a viable turnaround of the company. Most analysts are not convinced that Tranmil can survive under the current business model.

Chartwise, the share price of Tranmil is still in a downtrend line, with resistance at RM1.70-73 level. A breakout above this downtrend line could potentially send the share price to RM1.90-2.00. At this level, debtors could be encouraged to convert their debts to shares. I do not see how they could subsequently realize the moneys tied down in the shares issued in exchange for their debts. I expect the subsequent selldown of these shares to be ferocious.


Chart: Tranmil's daily chart as at May 22, 2008 (source: Quickcharts)