It will issue 160m new shares at 64cents each to institutional and other investors
By JAMIE LEE
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AFTER soaring in price by more than two-fifths in just one month, the stock of Raffles Education Corporation (REC) retreated by as much as 12.5 per cent yesterday on news of a share placement to raise a net of some $101 million.
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| Mr Chew: The controlling shareholder and chief executive did not raise his stake by taking more shares |
REC - which runs private schools mostly in China - is raising the fund through the issue of 160 million new shares at 64 cents to institutional and other investors.
The issue price represents a discount of about 6.6 per cent to Wednesday's closing price of 68.5 cents. But after an intraday low of 60 cents yesterday, the stock closed trading at 62 cents, down 6.5 cents or 9.5 per cent.
It was the most actively traded stock, with 274 million shares changing hands. This includes a late married deal for 194 million shares at 62.5 cents apiece at around 4.50 pm, Reuters data showed.
BT understands that the shares were placed out to European and American funds following roadshows conducted last month. Controlling shareholder and chief executive Chew Hua Seng did not raise his stake by taking up more shares.
This is the second share placement done by REC in about two months and was anticipated by analysts as the group had said that it planned to rid its debts by 2010.
In March, REC raised net proceeds of $30.1 million from the placement of 80 million new shares at $0.381.
CIMB-GK analyst Ho Choon Seng said in a client note yesterday: 'The fund-raising does not come as a surprise to us as we had pointed out earlier that the management's target of achieving debt-free status by end-FY10 was aggressive.'
Stocks tend to fall after the company makes share placement announcements because of the dilutive effect on earnings per share (EPS).
Mr Ho sees a dilution of as much as 6 per cent on REC's FY2009-2011 EPS estimates, though the dilution will be slightly offset by savings in interest expenses.
But some dealers said yesterday that the share price was also correcting after surging in the past few weeks on fund play.
'The stock shot up over the last four weeks so there's some pullback,' said one remisier.
Shares of REC have risen 44.2 per cent over the last one month, outperforming the Straits Times Index by 35 percentage points. This brings REC's market value to $1.51 billion.
In response to a Singapore Exchange query early this month about the substantial increase in the price of the counter, REC said then that it had no explanation for the trading.
On the share price plunge yesterday, a dealer said that shareholders could be concerned that REC was raising too much money and too often via share placements.
REC will use about $60 million or about 60 per cent of the funds to repay part of the outstanding payment for Oriental University City Development (OUC). The remainder will be used to repay bank loans and for working capital.
REC was also queried last month on whether it would be able to finance its short-term obligations, given its negative working capital of $201.85 million as at March 31.
In response, REC said that the 500 million yuan (S$105.9 million) payment due at the end of this year for part of its acquisition for OUC would be deferred. REC said after a week later that this 500 million yuan would be paid before 30 April 2010.
The remaining one billion yuan would be paid in three tranches, with 105 million yuan to be paid before 31 December 2010, another 500 million yuan by 31 December 2012 and the final 395 million yuan by 31 December 2013.
Prior to the deferment, the full payment for OUC was meant to be settled by 2011.
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