'Perwaja loan stocks sale a good move'

Perwaja Holdings Bhd's move to raise RM280 million via restricted issues is a good avenue to address working capital
needs, especially now that its financing needs are expected to escalate.

"As Perwaja has put into motion plans to reduce costs via a concentration and pelletising plant costing RM200 million, the company’s financing needs are expected to escalate," said OSK Research today.

It said the implementation of various mega projects under the government’s Economic Transformation Programme soon is also expected to spur demand for steel products, which will in turn increase the group’s working capital requirement.

Yesterday, Perwaja, a leading manufacturer of primary steel products, in a filing to Bursa proposed to raise funds for its working capital through a proposed restricted issue of RM280 million nominal value of 7-year seven per cent redeemable convertible unsecured loan stocks (RCULS) to Kinsteel Bhd at 100

per cent of its nominal value.

"We welcome Perwaja’s move to raise funds via RCULS as it will minimise the immediate dilution effect given that the instrument can only be converted after five years from the date of issue and the fixed coupon rate would enable the company to secure its cost of funds during the tenure of the RCULS, especially with interest rates looking to inch higher," said OSK.

Meanwhile, Perwaja’s gearing is expected to stay below 1x upon full exercise of the RCULS compared with OSK's previous projection of 1.4x and 1.5x in this year and next year, respectively. OSK has put Perwaja's fair value at RM1.40. -- Bernama