KUALA LUMPUR (July 18): Reinsurer MNRB Holdings Bhd has proposed to undertake a rights issue to raise gross proceeds of about RM400 million. In a filing with the stock exchange today, the group said the issue price and entitlement basis would be finalised later. But for illustration purpose, the group assumed the issue price at RM1.57 per rights share, and an entitlement basis of four rights shares for every five shares held. MNRB said the proceeds of the rights issue will be injected into its takaful subsidiaries — Takaful Ikhlas Bhd and Malaysian Reinsurance Bhd, at RM300 million and RM100 million respectively — to enhance the capital position for both companies and grow its takaful and reinsurance business. MNRB also said it intends to procure an irrevocable written undertaking from Permodalan Nasional Bhd (PNB) to subscribe in full for its entitlement. PNB and the unit trust fund managed by PNB (namely AmanahRaya Trustees Bhd — Amanah Saham Bumiputera) hold about 12.7% and 42.4% respectively in MNRB. MNRB said the issue price represents a discount of 20.3% to the theoretical ex-rights price of RM1.97, based on the five-day volume weighted average market price of RM2.29 as at June 22. The group said the rights issue is expected to contribute positively to its future earnings upon the utilisation of proceeds raised. “Barring any unforeseen circumstances, the proposed rights issue is expected to be completed in the fourth quarter of 2018,” said MNRB. 

Subsequent to the above development, MNRB’s share price closed to as low as RM1.90 per share, falling below its theoretical ex-right price. Equity fundraising usually doesn’t sit well with the investors. MNRB is currently trading way below its book value (please note that there is a lot of stocks which are constantly trading below their book value and remain traded below book value for a very long time*), potentially attributable to certain fundamental issues.

*usually low-growth and no catalysts stocks

Nevertheless, one may consider this whole episode from a probability standpoint. Its current trading PBR is at approximately 0.41x, which is relatively / significantly lower than its historical median and mean (since 4 January 2010). From 4 Jan 2010 till 26 July 2018, there are 2077 data points of MNRB’s historical PBR. Its current trading PBR of 0.41x is approximately in between -1.5 and -2.0 std deviation from its historical mean (which also means a relatively low chance of 4.4% of going lower than 0.41x)

MNRB table.png

 

MNRB gp

Unless there is potential future deterioration in the book value of MNRB, could this represent a good probabilistic bet, perhaps?

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