SC Allows Variations To Facilitate Capital-Raising

Kuala Lumpur, 24 July 1998

The present economic difficulties have badly hit companies listed on Kuala Lumpur Stock Exchange (KLSE). Volatile foreign exchange movements have greatly increased the cost of doing business for many companies, and have also made it difficult for them to project their financial performance for future years. In addition, the plunge in share prices across the board and the tight liquidity in the banking sector have adversely affected the respective companies' ability to raise funds.

In order to alleviate some of the problems that these companies are facing in raising funds, the SC wishes to announce several variations to the requirements of its Policies and Guidelines on Issue/Offer of Securities (Issues Guidelines) to facilitate the raising of funds through the capital market. These measures are in line with the Commission's programme towards full disclosure-based regulation (DBR), but some of them are being introduced earlier than originally planned.

The increased flexibility accorded to companies will demand a greater standard of responsibility and corporate behaviour on the part of promoters, directors, senior management and advisers. On its part, the SC will expect a high level of conduct and corporate governance from all parties and will enforce laws, rules and regulations strictly to maintain these standards.

It is hoped that these variations will provide avenues for listed companies to structure their capital-raising proposals to meet the needs of investors, particularly strategic investors. Directors of listed companies are reminded that any corporate exercise to be undertaken should be in the best interests of the company.

The variations to the Issues Guidelines take effect immediately.

1. VARIATIONS ON THE ISSUANCE OF CONVERTIBLES AND WARRANTS

Under Chapter 22 of the present Issues Guidelines, where the issue of warrants or other convertibles is made by way of rights to shareholders, the number of new shares arising from the exercise/conversion of the warrants/convertible securities for which listing is applied shall be limited to 50% of the company's enlarged paid-up capital before exercise/conversion.

In cases where the issue of warrants or other convertibles is not made by way of rights to shareholders, the number of new shares arising from the exercise/conversion of the warrants/convertible securities for which listing is applied and all such issues made within the preceding twelve (12) months shall be limited to 10% of the company's existing paid-up capital before exercise/conversion.

The variations are as follows:-

(i) Issuance of Convertible Securities

The limit on the issuance of convertible securities, either by way of rights or otherwise, is now removed. The existing requirements pertaining to conversion price, shareholders' voting rights as well as utilisation of proceeds would continue to apply.

The Commission would like to clarify that dealings in convertible securities and warrants will be subjected to the requirements of Chapter 5 of the Issues Guidelines which cover dealings in securities. All parties, including substantial shareholders of the issuer, are reminded to adhere to the existing laws and rules on securities dealings and disclosure.

Directors and major shareholders subscribing for the convertible securities to be issued should not dispose of the underlying ordinary shares prior to the listing of the convertible securities.

(ii) Issuance of Warrants

The SC wishes to state that, from now on, the attachment of warrants with rights shares, as provided for under clause 22.02(i) of Chapter 22 of the Issues Guidelines, will be allowed.

However, the pricing of the rights shares should be fixed such that the issuer derives maximum benefit from the capital-raising proposal.

The issuance of naked warrants shall be allowed only under certain specific circumstances as follows:-

For purposes of strengthening a company's financial position pursuant to a restructuring exercise; and
For purposes of restructuring of debts or repayment of bank borrowings in order to save a default situation.

The limit for the issuance of all warrants, either by way of rights or otherwise, aggregated with all outstanding warrants, shall not exceed 50% of the company's issued share capital before exercise.

2. EARNINGS DILUTION FOR ACQUISITION EXERCISES

Taking into account the current economic situation, the SC would consider allowing dilution in earnings per share (EPS) resulting from acquisition exercises by public companies. Companies must disclose and provide justifications for the dilution in EPS and the expected gestation period for the restoration of the EPS.

3. PROFIT FORECASTS AND PROJECTIONS

Applicants may choose not to submit to the SC profit forecasts and projections duly verified by auditors if it is difficult to make such profit projections under the current conditions. However, the SC would require the company to submit for its review the budgeted financial projections prepared by senior management and duly endorsed by its directors. The SC will continue to monitor the post-exercise performance of the company based on these figures.

For purposes of disclosure in public documents (circulars to shareholders or offering documents), a section discussing the qualitative factors of the exercise and presenting the directors' views on the outlook of the company and sector should be included in the document. The directors must accept full responsibility for the representations made in the public documents.

This dispensation will not apply to applications for initial public offerings (IPO).

SECURITIES COMMISSION MALAYSIA

Issued on behalf of the Securities Commission. For assistance, please contact the Corporate Affairs Department at 03-250 7513 (Ann Teoh) or 03-250 7550 (Nafizah Omar) or fax. 03-253 6184.