THE more important question surrounding Ekovest Bhd’s proposed RM355.85mil rights issue is not whether minority shareholders will subscribe.
It is whether they should put more money into the group and, crucially, whether the project that will consume the largest chunk of the proceeds can generate adequate returns.
Ekovest plans to allocate RM150mil of the proceeds to the RM2.32bil Laluan Istana-Kiara Expressway (Like), RM100mil to reduce borrowings, with the balance going towards the Setiawangsa-Pantai Expressway, EkoTitiwangsa and working capital.
On paper, Like looks attractive. The project comes with a 54-year concession, giving Ekovest the right to collect toll.
Existing Duta-Ulu Klang Expressway or Duke traffic has also been growing, with average daily traffic reaching 89,103 vehicles in the first half of financial year 2024 (FY24), 47% above FY19.
But that does not automatically make Like a bankable investment.
The concession is estimated to cost RM2.32bil – more than six times the amount Ekovest is raising from shareholders.
The RM150mil allocation is, therefore, merely seed capital for a much larger financing commitment.
Then comes the uncomfortable dilution issue.
The rights issue will increase Ekovest’s share base by 60%.
Tan Sri Lim Kang Hoo and Ekovest Holdings Sdn Bhd have undertaken to subscribe for their entitlements, while Ekovest Holdings has also agreed to take up any unsubscribed shares.
If minorities largely sit out, the controlling parties’ collective stake could rise from 32.06% to 57.54%, triggering a mandatory general offer (MGO).
Is that good or bad for minorities?
An MGO gives minorities an exit opportunity. But it could also leave them facing a choice between putting more money into Ekovest now or selling later into a company controlled even more firmly by Lim.
More importantly, where does the money come from if minorities do not subscribe?
The Securities Commission’s takeover rules require an offerer and its financial adviser to be satisfied that sufficient financial resources are available to fulfil a cash offer. So, proof of funds will have to be addressed when the takeover process is launched.
But for minorities, the bigger issue is whether Like can justify another multi-billion-ringgit capital commitment by Ekovest.
Until investors have greater clarity on traffic assumptions, toll economics, project financing, expected returns and the group’s deleveraging path, asking minorities to fund Ekovest’s next growth phase looks more like a bet on the concession eventually paying off.