Rights Issues Surge as Issuers Target Fresh Funds for Expansion and Acquisitions

A number of issuers are once again utilising Pre-emptive Rights (Rights Issue) to support their business agendas. The funds raised from these corporate actions are being directed towards expansion, acquisitions, and infrastructure development.

One of the issuers preparing a rights issue is PT Ultrajaya Milk Industry & Trading Company Tbk (ULTJ). The company plans to issue a maximum of 7.878 billion new shares at an execution price of Rp2,150 per share. Through this action, ULTJ has the potential to raise fresh funds of up to Rp16.94 trillion.

Approximately 86.01% of the rights issue proceeds will be used by ULTJ to take over 100% of Frisian Flag Indonesia through an inbreng (contribution in kind) scheme. This transaction would make FrieslandCampina International Holding the new controlling shareholder of ULTJ.

A similar scheme is being pursued by PT DMS Propertindo Tbk (KOTA), which is using its rights issue as a funding source for acquisitions. KOTA is preparing a maximum of 100 billion new shares and targets funds of approximately Rp4.95 trillion.

About Rp4.4 trillion of the rights issue proceeds will be used by KOTA to purchase 99.99% of the shares in PT Art Design Indonesia and PT Mandirinusa Graha Perkasa. Meanwhile, the remaining funds will be used for working capital, operations, and business development.

Additionally, approximately Rp668.61 billion of MGLV’s funds will be used to acquire receivables, while around Rp1.6 trillion will be allocated as capital to two of its business entities for the development of data centre facilities in Cikarang and Batang.

Rights Issue Prospects

Elandry Pratama, Analyst and Branch Manager at Panin Sekuritas Pondok Indah, explained that a rights issue serves as an alternative funding method when the cost of capital is high, as companies can obtain additional equity without increasing interest burdens.