SC Allows Two-Call Rights Issue

Kuala Lumpur, 5 November 1998

In the light of the current economic situation, many listed companies are facing difficulties in raising funds, due mainly to the tight liquidity of the market as well as the plunge in share prices. Share prices of many companies are currently traded below their par value and may not reflect the fundamentals of the companies. Taking cognisance of the problems, the Securities Commission (SC) has in July this year announced variations to the requirements of its Policies and Guidelines on Issue/Offer of Securities to facilitate the raising of funds by these companies through the capital market.

In its continuous efforts to further alleviate some of the problems faced by listed companies in raising funds, the SC wishes to announce that it has endorsed the concept of a two-call rights issue. The distinct feature of a two-call rights issue is that the first call is to be paid up in cash on application by shareholders, whilst the second call will be paid up by capitalising from the company's reserves accounts. Companies which have a significant amount standing in their share premium account, for example, would be able to utilise the balance for the purpose of capitalisation under a two-call rights issue.

The following are the requirements which need to be complied with by listed companies wishing to undertake a two-call rights issue exercise:

  1. A two-call rights issue shall be undertaken only if the share price of the company is traded around or below its par value, and that the company is in urgent need of funds to meet its immediate financial obligations;
  2. The listed company may capitalise up to the maximum of the share premium account based on their last audited accounts, for the purpose of paying up the second call. Companies wishing to capitalise from retained earnings or distributable reserves for the second call should be those which are able to meet SC's existing requirements on bonus issue capitalisation.
  3. The listed company is expected to apply a fair and reasonable discount vis-à-vis the current market price while fixing the cash price for the first call.

Directors of listed companies are reminded to give careful consideration to the price structure when undertaking a two-call rights issue. Potentially, a two-call rights issue has a more pronounced dilutive effect on earnings than would a normal rights issue. Issuers must therefore ensure that the discount fixed for the first call is in the best interest of the companies in order to minimise such dilutive effect while being able to raise meaningful cash proceeds from the exercise.


Issued on behalf of the Securities Commission. For assistance, please contact 03-2597164 (Karen De Cruz) / 03-2507513 (Ann Teoh) or fax no. 03-2536184.
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