PETALING JAYA: Hong Leong Investment Bank (HLIB) Research has upgraded UMW Oil & Gas Corp Bhd (UMW-OG) to “hold” from “sell” after its merger with Orkim Sdn Bhd and Icon Offshore Bhd was called off.
This is because the research house is more positive on the group’s new proposal to raise RM1.8 billion through a 14-for-5 rights issue exercise to pare down its debt, as it will remove the market overhang on the valuation and lack of synergy resulting from a merger.
UMW-OG’s target price has been raised from 57 sen to 72 sen, based on a higher price-to-book value multiple of 0.8 times from 0.7 times.
UMW-OG’s stock fell 7 sen or 10.14% to close at RM62 sen last Friday on some 18.95 million shares done.
The rights issue entails the issuance of up to 6.05 billion new shares, together with up to 1.51 billion free warrants at an issue price of 30 sen per rights share. The group plans to use RM1.5 billion of the proceeds to repay bank borrowings and RM310 million for working capital.
HLIB Research said the repayment of borrowings would result in around RM60 million interest cost savings while reducing the gearing from 1.8 times to 0.49 times.
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