Published March 11, 2009

RIGHTS JITTERS
Chartered shares suffer steepest fall in a decade

Investors bailing out on news of US$300m rights issue, and poor industry outlook

By WINSTON CHAI
Email this article
Print article
Feedback

SHARES of Chartered Semiconductor Manufacturing went into freefall yesterday as selling pressure gripped the market following the chipmaker's US$300 million cash call.

The company's share price plunged 39 per cent to close at 12.5 cents - its steepest fall in the last decade.

The adverse market reaction came a day after Chartered announced plans to raise US$300 million through a 27-for-10 discounted rights issue.

Under the plan, existing shareholders are entitled to buy 27 new shares at seven cents each for every 10 they own, translating to a markdown of 65.9 per cent from Chartered's traded price of 20.5 cents on Monday.

Chartered's major shareholder, Temasek Holdings subsidiary Singapore Technologies Semiconductors, has undertaken to subscribe for its pro-rata entitlement of 59.4 per cent and further pledged to purchase up to 90 per cent of the offering.

Market watchers say that the cash call is to be expected given Chartered's need to shore up capital in the face of mounting losses following the global electronics slump.

'While the US$300 million net proceeds to be raised falls far short of Chartered's outstanding debt of US$1.84 billion, it will nevertheless provide some much-needed funding where net gearing is at an unprecedented high of 104 per cent,' said James Lim of DMG & Partners in a research note.

'More importantly, this will ensure that Chartered will not breach its existing loan covenants under which the company needs to maintain its shareholders' equity above US$1 billion with net gearing not more than 180 per cent,' he explained.

Nonetheless, Mr Lim downgraded the stock to a 'sell' and advised investors to offload their shares instead of subscribing to the rights issue.

He attributed this call to Chartered's sustained underperformance and a protracted semiconductor slump that is set to drag beyond 2009.

CIMB analyst Jonathan Ng downgraded the chipmaker to 'underperform' because he sees 'limited upside' following the rights issue.

'Also, we believe there could be selling pressure in the near term on this news,' he added - a view that appears to have started resonating in the market.