Hovid to distribute 1 Carotech share for 4 Hovid shares held

KUALA LUMPUR: HOVID BHD [] plans a distribute a portion of its shareholding interest in CAROTECH BHD [] on the basis of one Carotech share for every four Hovid shares to rectify Hovid’s status as a PN17 company.

Hovid said on Monday, Aug 15 the Carotech shares to be distributed under the minimum scenario was 190.52 million shares while the maximum scenario was 285.78 million shares.

As at July 31, Hovid held 38.45% of Carotech shares, which would be reduced by 20.88% following the dividend-in-specie to 17.57% under the minimum scenario. Under the maximum scenario, it would be reduced by 31.32% to 7.13%.

Hovid’s original cost of investment in the Carotech shares was about RM38.54 million which were acquired between November 2004 and October 2010.

It said as at July 31, Hovid’s paid-up was RM76.208 million comprising of 762.08 million shares whilst the total unexercised warrants were 381.04 million warrants. If the warrants were exercised, its paid-up would increase to 1.143 billion shares.

“It is estimated that upon completion of the proposed dividend-in-specie, Carotech will cease to be an associate company to Hovid as Hovid will only retain a residual holding of between 7.13% and 17.57% of the issued and paid-up capital of Carotech. The remaining Carotech shares are intended to remain as part of Hovid’s investment portfolio,” it said.

Hovid said shareholders would not assume any liabilities under the proposed dividend-in-specie. The proposed dividend-in-specie may result in an adjustment to the share price of Hovid by Bursa Malaysia Securities Bhd.

Explaining the rationale of the corporate exercise, it said as of Oct 29, 2010 Hovid was considered as a PN17 company due to a disclaimer opinion expressed by the auditors on the financial statements of Hovid for the FYE 2010.

Based on the latest audited financial statements of Hovid for the FYE 2010, Carotech was 58.19% held by Hovid.

Since August 2010, Hovid had sold 19.73% equity interest in Carotech and thereafter, Carotech was only considered as an associate company by Hovid. Consequently, the effective interest of Hovid in Carotech has been reduced to approximately 38.45% as at the date the financial statements for the FYE 2010 were approved by the board.

Hovid said the auditors of Carotech had expressed the Carotech disclaimer opinion due to Carotech’s default on the repayment of certain borrowings which were due for payment during the FYE 2010, which was announced on July 1, 2010.

Hovid said to resolve its financing woes, Carotech sought the assistance of the Corporate Debt Restructuring Committee to mediate between Carotech and its lenders on its proposed debt restructuring scheme, the approval of which was not yet forthcoming from its lenders as at the date of the financial statements.

Without having the approval of the lenders for the proposed debt restructuring scheme and coupled with various uncertainties, the auditors of Carotech had expressed a disclaimer opinion on the financial statements for the FYE 2010.

As a result, Carotech had triggered the criteria of Guidance Note No. 3 of the ACE Market Listing Requirements of Bursa Securities, which also consequently meant that by virtue of having Carotech as a significant subsidiary, Hovid triggered the abovementioned PN17 criteria and was considered as a PN17 Company.

“The proposed dividend-in-specie will therefore serve to rectify the status of Hovid as a PN17 company by virtue of reducing Hovid’s equity stakes in Carotech. Upon completion of the proposed dividend-in-specie, Hovid will hold less than 20% of Carotech and hence, Carotech will only be considered as an investment in Hovid’s books,” it said.

Hovid said Carotech would no longer be an associate and the significance of Carotech in the Hovid Group would be substantially reduced for the financial year ending June 30, 2011.

Hovid would then apply to Bursa Securities to uplifting its PN17 status. The proposed dividend-in-specie was also to enable Hovid shareholders to invest directly in Carotech without any cash outlay.

“Further, the proposed dividend-in-specie would unlock the value of the Hovid shares as the share price of Hovid is currently unduly affected by the PN17 status. Hovid’s pharmaceutical business may also be better reflected in its financial statements without the inclusion of the share of losses of its associated company, Carotech,” it said.

wonder who will go up who will go down hmmmmm