IRIS CORPORATION BERHAD (“IRIS” OR THE “COMPANY”)
PROPOSED WARRANTS ISSUE
1. INTRODUCTION
On behalf of the Board of Directors of IRIS Corporation Berhad (“IRIS” or the “Company”) (“Board”), MIMB Investment Bank Berhad (“MIMB”) is pleased to announce that the Company proposes to undertake a renounceable rights issue of up to 223,408,274 new six (6)-year warrants (“New Warrants”) on the basis of three (3) New Warrants for every twenty (20) existing ordinary shares of RM0.15 each in IRIS (“Shares” or “IRIS Shares”) held at an indicative issue price of RM0.05 per New Warrant ("Proposed Warrants Issue").
2. PROPOSED WARRANTS ISSUE
2.1 Details of the Proposed Warrants Issue
The Proposed Warrants Issue involves the issuance of up to 223,408,274 New Warrants on a renounceable basis of three (3) New Warrants for every twenty (20) existing IRIS Shares held at an indicative issue price of RM0.05 per New Warrant. The New Warrants will be issued in registered form and constituted by a Deed Poll to be executed by the Company.
The maximum of 223,408,274 New Warrants to be issued pursuant to the Proposed Warrants Issue (“Maximum Scenario”) was arrived at based on the issued and paid-up ordinary share capital of IRIS as at 31 December 2009 of RM212,276,910 comprising 1,415,179,403 IRIS Shares and assuming the following:-
(i) full conversion of the 27,591,504 outstanding irredeemable convertible preference shares of RM0.15 each (“ICPS”) issued by IRIS as at 31 December 2009 into 27,591,504 new IRIS Shares; and
(ii) full exercise of the 46,617,589 outstanding warrants (2006/2016) (“Warrants 2006/2016”) of IRIS as at 31 December 2009 into 46,617,589 new IRIS Shares.
Assuming that none of the ICPS and Warrants 2006/2016 is converted/exercised into new Shares on or prior to the entitlement date for the Proposed Warrants Issue, the Proposed Warrants Issue would entail the issuance of only 212,276,910 New Warrants (“Minimum Scenario”).
2.2 Basis of Arriving at the Issue Price
The indicative issue price of RM0.05 per New Warrant was determined by the Board after taking into consideration the following factors:-
(i) the theoretical fair value of the New Warrants of approximately RM0.13 each which was arrived at based on the five (5)-day weighted average market price of IRIS Shares up to and including 18 January 2010 of approximately RM0.17 each using the Black-Scholes Option Pricing Model. The indicative issue price of RM0.05 per New Warrant represents a discount of approximately 62% from the theoretical fair value of the New Warrants;
(ii) the five (5)-day weighted average market price of the existing outstanding Warrants 2006/2016 up to and including 18 January 2010 of approximately RM0.11 each; and
(iii) the funds to be raised from the Proposed Warrants Issue.
Premised on the above bases, the final issue price of the New Warrants shall be determined by the Board at a later date closer to the implementation of the Proposed Warrants Issue.
2.3 Basis of Arriving at the Exercise Price
The exercise price of the New Warrants shall be determined at a later date by the Board based on a discount that is deemed appropriate by the Board after taking into consideration the five (5)-day weighted average market price of IRIS Shares immediately prior to the price fixing date, subject to the minimum par value of IRIS Share of RM0.15 each.
2.4 Ranking of the Shares arising from the Exercise of the New Warrants
All the new Shares in IRIS to be issued upon the exercise of the New Warrants shall, on allotment and issue, rank pari passu in all respects with the then existing IRIS Shares except that they shall not be entitled to any dividends that may be declared prior to the date of exercise of the New Warrants, nor shall they be entitled to any distributions or entitlements for which the record date is prior to the date of exercise of the New Warrants.
2.5 Utilisation of Proceeds
Based on the indicative issue price of RM0.05 per New Warrant, the Proposed Warrants Issue is expected to raise proceeds of between RM10.6 million and RM11.2 million (“Warrants Proceeds”).
The Warrants Proceeds are proposed to be utilised in the following manner:-
Proposed utilisation / AmountMinimum Scenario / Maximum Scenario
Repayment of bank borrowings / RM10.0 million / RM10.0 million
Defraying estimated expenses relating to the Proposed Warrants Issue and working capital / RM0.6 million* / Up to RM1.2 million
Total / RM10.6 million / Up to RM11.2 million
Note:
* As the estimated expenses in relation to the Proposed Warrants Issue amount to RM0.75 million, the deficit will be funded by internally generated funds.
The proceeds from the Proposed Warrants Issue are planned to be utilised within three (3) months upon the listing of and quotation for the New Warrants on the ACE Market of Bursa Securities.
Assuming a full exercise of the New Warrants at the exercise price of RM0.15 per New Warrant, which is the par value of each IRIS Share, up to 223,408,274 new IRIS Shares would be issued and IRIS would potentially raise an additional proceeds of between approximately RM31.84 million and RM33.51 million respectively, over the tenure of the New Warrants and such proceeds are earmarked by the Company for future repayment of bank borrowings and/or working capital.
2.6 Undertaking from Substantial Shareholders and Underwriting Arrangement
IRIS will endeavour to procure the written irrevocable undertakings from certain substantial shareholders to subscribe for their entitlements in full under the Proposed Warrants Issue (“Undertakings”).
There is no minimum subscription amount to be raised from the Proposed Warrants Issue. All the New Warrants which are not subject to the Undertakings will be fully underwritten.
2.7 Admission to Bursa Malaysia Securities Berhad (“Bursa Securities”)
Application will be made to Bursa Securities for the following:-
(a) admission of the New Warrants to the Official List of Bursa Securities; and
(b) the listing of and quotation for the New Warrants and any new IRIS Shares to be issued arising from the exercise of the New Warrants on the ACE Market of Bursa Securities.
2.8 Indicative Principal Terms of the New Warrants
Form and denomination / : / The New Warrants will be issued in registered form and constituted by a Deed Poll to be executed by the Company.Number of Warrants / : / Up to 223,408,274 New Warrants to be issued pursuant to the Proposed Warrants Issue on the basis of three (3) New Warrants for every twenty (20) existing IRIS Shares held.
Exercise Price / : / The exercise price payable in respect of each IRIS Share to which a New Warrant holder will be entitled to subscribe upon exercise of the Exercise Rights (as defined below) shall be determined at a later date by the Board based on a discount that is deemed appropriate by the Board after taking into consideration the five (5)-day weighted average market price of IRIS Shares immediately prior to the price fixing date, subject to the minimum par value of IRIS Shares of RM0.15 each.
Exercise Period / : / Six (6) years commencing from and inclusive of the date of issue of the New Warrants. The New Warrants which are not exercised during the Exercise Period shall thereafter lapse and cease to be valid.
Exercise Rights / : / Each New Warrant entitles the holder to subscribe for one (1) new IRIS Share at the Exercise Price at any time during the Exercise Period.
Deed Poll / : / The New Warrants are constituted by a Deed Poll to be executed by IRIS.
Board lot / : / The New Warrants are tradable upon listing on Bursa Securities in board lots of 100 New Warrants
Status of new IRIS Shares to be issued pursuant to the exercise of the New Warrants / : / All new IRIS Shares to be issued upon the exercise of the New Warrants shall, on allotment and issue, rank pari passu in all respects with the then existing IRIS Shares except that they shall not be entitled to any dividends that may be declared prior to the date of exercise of the New Warrants, nor shall they be entitled to any distributions or entitlements for which the record date is prior to the date of exercise of the New Warrants.
Adjustment in the Exercise Price and/or the number of New Warrants held by holders of New Warrants in the event of alteration to the share capital / : / Subject to the provisions of the Deed Poll, the Exercise Price and/or the number of New Warrants held by each holder of New Warrant shall be adjusted by the Board in consultation with the auditor or principal adviser, in the event of alteration to the share capital of the Company in accordance with the provisions as set out in the Deed Poll.
3. RATIONALE FOR THE PROPOSED WARRANTS ISSUE
After due consideration of various fund raising methods available, the Board is of the view that the Proposed Warrants Issue is currently the most appropriate avenue of raising funds for the Company and its group of companies (“IRIS Group” or “Group”) based on the following factors:-
(a) the Proposed Warrants Issue will allow the Group to raise funds for immediate repayment of outstanding borrowings thus improve the Group’s profitability;
(b) the Proposed Warrants Issue will provide the shareholders of IRIS with an attractive option to increase their equity participation in the Company during the tenure of the New Warrants; and
(c) there will be no immediate dilution of earnings per share until the exercise of the New Warrants; and
(d) upon exercise of the New Warrants into new IRIS Shares, the Proposed Warrants Issue will enable the Group to raise funds without incurring interest cost, as compared to bank borrowings, and to improve the gearing of the Group.
4. EFFECTS OF THE PROPOSED WARRANTS ISSUE
4.1 Share Capital
The effects of the Proposed Warrants Issue on the share capital of IRIS are as follows:-
Minimum Scenario 1 / Maximum Scenario 2No. of Ordinary Shares
(‘000) / RM’000 / No. of Ordinary Shares
(‘000) / RM’000
IRIS Shares
Existing as at 31 December 2008 / 1,404,521 / 210,678 / 1,404,521 / 210,678
Issued pursuant to the conversion of ICPS up to 31 December 2009 3 / 10,659 / 1,599 / 10,659 / 1,599
1,415,180 / 212,277 / 1,415,180 / 212,277
Upon full conversion of the remaining outstanding ICPS prior to the entitlement date for the Proposed Warrants Issue 4 / - / - / 27,591 / 4,139
1,415,180 / 212,277 / 1,442,771 / 216,416
Upon full exercise of existing Warrants 2006/2016 prior to the entitlement date for the Proposed Warrants Issue 5 / - / - / 46,618 / 6,993
1,415,180 / 212,277 / 1,489,389 / 223,409
Upon full conversion of the remaining outstanding ICPS upon maturity 4 / 27,591 / 4,139 / - / -
1,442,771 / 216,416 / 1,489,389 / 223,409
Upon full exercise of the New Warrants 6 / 212,277 / 31,842 / 223,408 / 33,511
1,655,048 / 248,258 / 1,712,797 / 256,920
No. of ICPS (‘000) / RM’000 / No. of ICPS
(‘000) / RM’000
ICPS
Existing as at 31 December 2008 / 38,250 / 5,738 / 38,250 / 5,738
Conversion into IRIS Shares up to 31 December 2009 / (10,659) / (1,599) / (10,659) / (1,599)
27,591 / 4,139 / 27,591 / 4,139
Upon full conversion into IRIS Shares prior to the entitlement date for the Proposed Warrants Issue / - / - / (27,591) / (4,139)
27,591 / 4,139 / - / -
Upon full conversion into IRIS Shares upon maturity / (27,591) / (4,139) / - / -
- / - / - / -
Notes:
(1) Assuming none of the existing outstanding ICPS and Warrants 2006/2016 are converted/exercised into new IRIS Shares on or prior to the entitlement date for the Proposed Warrants Issue.
(2) Assuming all of the existing outstanding ICPS and Warrants 2006/2016 are converted/exercised into new IRIS Shares on or prior to the entitlement date for the Proposed Warrants Issue.
Notes (Cont’d):
(3) Based on the conversion of 10,659,100 ICPS at RM0.15 for each new IRIS Shares during the period from 31 December 2008 to 31 December 2009. None of the existing outstanding Warrants 2006/2016 as at 31 December 2008 has been exercised into new IRIS Shares during the period from 31 December 2008 to 31 December 2009.
(4) Based on the conversion of ICPS at RM0.15 for each new IRIS Shares.
(5) Based on the exercise price of RM0.15 per Warrant 2006/2016.
(6) Assuming an exercise price of RM0.15 per New Warrant.
4.2 Earnings and Earnings Per Share
The Proposed Warrants Issue is expected to contribute positively to the consolidated earnings of the Group for the financial year ending 31 December 2010 due to interest savings of approximately RM650,000 per annum (assuming an interest rate of about 6.5% per annum) arising from the proposed repayment of bank borrowings of RM10.0 million from the proceeds of the Proposed Warrants Issue. However, the earnings per share may be diluted upon exercise of the New Warrants into new IRIS Shares.
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4.3 Net Assets (“NA”) and Gearing
The proforma effects of the Proposed Warrants Issue on the NA per Share of the IRIS Group based on the audited consolidated financial statements of the IRIS Group for the financial year ended 31 December 2008 are set out below:-
Minimum Scenario(I) / (II) / (III) / (IV)
Audited As at 31 December 2008 / After the conversion of the ICPS from
1 January 2009 to 31 December 2009 1 / After (I) and the Proposed Warrants Issue / Upon full conversion of the remaining outstanding ICPS upon maturity / After (III) and assuming full exercise of New Warrants 2
RM'000 / RM’000 / RM'000 / RM’000 / RM'000
Share capital / 216,416 / 216,416 / 216,416 / 216,416 / 248,258
Share premium / 35,052 / 35,052 / 35,052 / 35,052 / 45,666
Foreign exchange translation reserve / 19 / 19 / 19 / 19 / 19
Revaluation reserve / - / - / - / - / -
Reserve relating to assets held for sale / 13,724 / 13,724 / 13,724 / 13,724 / 13,724
Warrants reserve / - / - / 10,614 / 10,614 / -
Retained profits / 13,075 / 13,075 / 12,325 3 / 12,325 / 12,325
Shareholders' equity/ NA / 278,286 / 278,286 / 288,150 / 288,150 / 319,992
No. of ordinary shares (‘000) / 1,404,521 / 1,415,180 / 1,415,180 / 1,442,771 / 1,655,048
NA per ordinary share (RM) / 0.20 / 0.20 / 0.20 / 0.20 / 0.19
Borrowings / 183,002 / 183,002 / 173,002 / 173,002 / 141,160
Gearing (times) / 0.66 / 0.66 / 0.60 / 0.60 / 0.44
Notes:-