KUALA LUMPUR, March 5 — RHB Research is maintaining a “buy” call on Top Glove Corporation Bhd with earnings estimates maintained.
The rubber glove manufacturer had announced yesterday its maiden exchangeable bonds (EB) offering with the principle amount of US$200 million (RM815.5 million) on Bursa Securities (under the exempt regime) and Singapore Exchange Trading.
In a research note today, RHB Research said the glove manufacturer also introduced a stock borrow arrangement with its major stockholders in connection with the EB issuance.
“We expect the stock borrow arrangement to increase short-term share price volatility and gather that the move was aimed at attracting a larger investor base for the EBs, while ensuring the terms of the bonds will be more attractive and beneficial to the company.
“Note that the stock borrow, which only comprises 2.0 per cent of Top Glove’s total shares, allows bond investors to hedge their positions when subscribing to the EBs,” it added.
RHB Research said during the initial period of the stock borrow, there may be some downward impact on the share price due to regulated short-selling activities, but expected the impact to be temporary.
The research house opined that the EBs priced at a two per cent per annum coupon for a five-year period was lower than the company’s current interest rate of four per cent annually.
“The difference of two per cent on RM800 million can result in potential interest savings of RM16 million.
“As 98.3 per cent of the net proceeds of RM814 million will be used to repay its existing debts, we do not expect the EBs issuance to change Top Glove’s net gearing,” it said.
RHB Research has set a new target price of RM5.80 for Top Glove, up by 26 per cent from RM4.60 previously.
At 11.44 am, shares of Top Glove were one sen higher at RM4.61 with 1.6 million units traded. — Bernama
Source: The Malay Mail Online