Maybank & TMI- rights issue examined

On Friday, both TMI & Maybank proposed a huge rights issue which the market has been anticipating. The rights issue will be carried out at a sharp discount to the prevailing share price, following in the foot steps of the successful rights issue by DBS of Singapore in February. However, one could not help but observe that the timing is not right for the TMI & Maybank's rights issue, as the global equity markets are now under strong selling pressure & the appetite of investors are greatly diminished.


Table 1: DBS, TMI & Maybank's rights issue compared

The DBS rights issue was carried at a discount of 35% to the Theoretical Ex-rights price. Based on the gross proceed that TMI & Maybank intend to raise & the number of shares that they intend to issue, we can compute the issue price of the rights shares. From this and assuming that the rights issue is priced at a discount of 35% to the Theoretical Ex-rights Price, we can compute both the last done or Cum-rights price as well as Theoretical Ex-rights Price that would yield the desired discount. This is shown in Table 1 above.


Table 2: Maybank's rights issue & likely discount rate

From Table 2 above, we can see that if Maybank were to close at RM4.83 cum-rights, a 9-for-20 rights issue at RM2.71 each will result in a discount of 35% to Theoretical Ex-rights Price. Since Maybank share price has lost 20 sen to close at RM4.90 at noon, on the first day of trading after the announcement of the rights issue, there is strong probability that Maybank share price may slide further. If so, the cum-rights price is likely to be less than RM4.83 & the rights issue will likely to be carried out at discount of less than 35% (probably at 30%). Nevertheless, the chances of the rights issue being aborted is quite slim since PNB & the various unit trust schemes under its management have committed to take up their portions totaling 69.4% of the rights entitlement and PNB has further agreed to apply for excess allocation of up to 20%.


Table 3: TMI's rights issue & likely discount rate

From Table 3 above, we can see that if TMI were to close at RM2.29 cum-rights, a 7-for-5 rights issue at RM1.00 each will result in a discount of 35% to Theoretical Ex-rights Price. TMI has lost 28 sen to close at RM2.73 at noon. While there is strong probability that TMI share price may slide further, I do not think that it will go below the RM2.29 level. As such, it is quite likely that the rights issue would be carried out at discount of about 35-40%. This will enhance the chances of a successful rights issue. In addition, Khazanah, EPF & Skim Amanah Saham Bumiputera have committed to take up their portions totaling 67.1% of the rights entitlement and Khazanah has further agreed to apply for excess allocation of up to 20%.

Chartwise, we can see that both Maybank & TMI have broken below their strong support at RM5.00 & RM3.00, respectively.


Chart 1: Maybank's daily chart as at Mar 2, 2009 (source: Quickcharts)


Chart 2: TMI's daily chart as at Mar 2, 2009 (source: Quickcharts)

PS. The pricing of the TMI's rights issue has not been finalized. The management has indicated that it may issue up to 5.25 billion shares in order to raise RM5.25 billion. For simplicity, I have assumed that the issue price is at RM1.00. It is possible that a smaller number of shares may be issued if the rights shares can fetch a higher price.