Ming Fung – Proposed rights issue: one new share for two old shares at HK$0.08/share
Ming Fung (860.HK, NR) has proposed to raise c. HK$175m by issuing 2.2bn shares via 1 for 2 rights issue at HK$0.08/share (at a 58% discount to the closing price on the last trading day on 25 February). The company intends to use the net proceeds for general working capital to enhance the financial position to expand its jewellery trading business and product portfolio and for future investments opportunities.
Impact on Hengdeli
Hengdeli is the largest shareholder of Ming Fung and owns 666.7m shares or 15.27% of the company. If Hengdeli particip ates in the rights issue, it will have to pay HK$27m for 333m shares. Otherwise, it will be diluted to owning 10.73% of Ming Fung. Hengdeli is in a results blackout period (2013 results due to be announced by the end of March) and cannot comment on this matter.
Hengdeli’s initial investment cost in Ming Fung was HK$400m (or HK$0.6/share) in April 2012. The plan was to tap into the jewellery business which complements its watch operation. Unfortunately, it did not take off. Hengdeli made provisions subsequently. The carry value of Ming Fung is HK$127m (or HK$0.19/share) as of 1H13, representing 1.7% (HK$0.03/share) of Hengdeli’s 1H13 book value .
The authors of this report wish to acknowledge the contribution made by Rena Ma, an employee of Amba Research, a third-party provider to Deutsche Bank of offshore research support services, and Richard Huang, an employee of Evalueserve, a third-party provider to Deutsche Bank of offshore research support services.