Soilbuild Business REIT has announced the launch of preferential offering to partially fund the acquisition of Bukit Batok Connection.
The preferential offering will issue up to 94,353,672 new units in Soilbuild REIT to raise S$59.4 million dollars. New units will be issues on the basis of 1 new unit for every 10 existing units. The new units will be issued at a price of S$0.63 per unit.
What is Preferential Offering?
A preferential issue is an issue of shares or of convertible securities by listed companies to a select group of persons under Section 81 of the Companies Act, 1956 which is neither a rights issue nor a public issue. This is a faster way for a company to raise equity capital.
Increase in Average Leverage
Before the preferential offering, the average leverage of Soilbuild REIT is 35.9% as mentioned in my previous post. If Soilbuild REIT manages to get the maximum proceeds of S$59.4 million, the average leverage will increase to 36%.
Dilution of Share Price
With the issuance of new units, we are all worried that the share price will be diluted.
As of 29th July 2016, a total of 943, 536, 726 units are issued, market closing price is S$0.67.
943,536,726 x $S0.67 = S$632,169,606
Assuming maximum proceeds,
94,353,672 x $0.63 = S$59,442,813.40
Estimated stock price after dilution
(S$632,169,606 + S$59,442,813.40) divide by (943,536,726 + 94,353,672)
Thus, the estimated stock price after dilution is $0.6664.
Can we conclude not much dilution after the new units are issued at preferential price?
Should you or I take up the Offer?
Based on the closing of S$0.68 on 18th August 2016. The issuance price of S$0.63 translate to a discount of 7.35%. With slight dilution in stock price and a decent discount of 7.35%, it is a pretty good offer. However, one should still consider the risks involved (Should You Buy Soilbuild REIT Now?) prior to making your own personal decision.