SINGAPORE - Catalist-listed sweet potato snacks maker China Star Food Group is proposing a one-for-one renounceable rights issue at 1.5 cents per rights share, with the net proceeds to go towards a partial capital contribution for a China subsidiary as well as working capital in Singapore, it announced late on Monday (Dec 10).
The non-underwritten rights issue of up to 296.9 million new ordinary shares is made pursuant to the share issue mandate approved by shareholders at the company's last annual general meeting on July 30, 2018. Assuming full subscription, the estimated net proceeds will be $4.32 million.
The issue price represents a discount of about 38.5 per cent to the Dec 10 closing price of 3.9 cents, and of about 55.6 per cent to the theoretical ex-rights price of 2.7 cents.
China Star Food said it decided to proceed on a non-underwritten basis as it considered the issue prices sufficiently attractive for existing shareholders, there is no minimum amount to be raised, and it will enjoy cost savings by not having to bear underwriting fees and commission.
China Star Food plans to use 81 per cent of the net proceeds as a partial capital contribution to its unit Fujian Zixin Biological Potato Co, incorporated in China. Fujian Zixin has an unpaid share capital of about 42.7 million yuan ($8.2 million), representing about 53.4 per cent of its total registered capital.
While Fujian Zixin has obtained an extension to the deadline for satisfying the unpaid share capital to June 10, 2024, China Star Food said it was of the view that "it would be in the company's best interest to ensure that the unpaid share capital is paid up in smaller instalments over a period of time rather than to seek a large capital funding for the same at a later time".
The company noted that Fujian Zixin was previously granted land use rights on the basis of, among other things, representations made to the authorities on Fujian Zixin's registered capital. It would thus be inappropriate for Fujian Zixin to reduce its share capital "and the company should honour its commitment towards satisfying Fujian Zixin's registered capital so that the relationship between Fujian Zixin and the relevant authorities would not be adversely affected", it added.
The rest of the net proceeds will be used as working capital for China Star Food's Singapore office, including salaries, administrative expenses, other operating expenses and other future expansions.
China Star Food added that the proposed rights issue is "part of its ongoing and prudent balance sheet management to strengthen its financial position, enlarge its capital base and further enhance the financial flexibility of the group, and to provide existing shareholders who are confident of the future prospects of the company with an opportunity to subscribe for additional shares".