YTL Corp fell 19 sen or 8.96% to RM1.93 at the close, valuing the infrastructure developer at RM21.43 billion. It had fallen 10.92% on Friday. Year to date (YTD), the company has seen a 27% decline in its share price.
YTL Power tumbled 39 sen or 10.81% to RM3.22, on the heels of a 10.86% fall on Friday, marking a 21.67% decline in just two trading days. The international multi-utility provider, with a market capitalisation of RM26.63 billion, has dropped 26.7% YTD.
The selldown started after the two companies announced a bonus issue of warrants on the basis of one free warrant for every five shares held in the respective companies.
If fully exercised by shareholders, the warrants will bring in RM3.4 billion to YTL Corp, and RM2.2 billion to its 54.9%-owned subsidiary YTL Power, according to Bursa Malaysia filings.
The warrants can be exercised over three years at a discount to their share prices – a 37% discount for YTL Corp, and a 39.5% discount for YTL Power – based on their closing prices last Thursday.
The former’s warrant price was set at RM1.50 per share while YTL Power’s warrant price was at RM2.45.
In its bourse filing, YTL Corp said the discount reflects the board’s intention to reward shareholders while addressing future funding needs of the company and its subsidiaries.
Warrants are essentially derivatives that companies issue which give investors the right, but not the obligation, to buy company stock at a particular price on or before the expiration date.
Share price dilution
The huge volume of warrant conversions would create a share overhang in the coming three years, which is likely to dilute the share prices of both companies. For example, YTL Power’s share base will increase by 20% or up to 1.67 billion new shares should the warrants be fully exercised.
Another downside for shareholders is that the warrants will be non-tradable, meaning they will not be able to sell it on the open market for a profit.
Kenanga Research noted that given the unlisted warrants are “uncommon”, warrant holders can only monetise them through a conversion to shares.
“To this end, we believe YTL Power’s shareholders are most likely induced into doing so early, as well as to mitigate pressure of EPS (earnings per share) dilution,” it said in a note.
CIMB Securities said all else being equal, a rights issue is neutral on shareholders’ wealth.
“However, it could potentially be positive if proceeds are used to fund new projects with attractive returns or to increase equity stake in existing value-accretive projects, and vice versa,” it said in a note last Friday.
The research house said while rights issues can sometimes “trigger negative near-term share price correction”, it does not expect the reaction to be as bad given investors do not need to immediately fork out cash.
Both YTL Corp and YTL Power expect their respective bonus warrant issuances to be completed by the second quarter of 2025.