KUALA LUMPUR: Frontken Corporation Bhd, which saw a 17% decrease in its third-quarter profit, has proposed a rights issue to raise up to RM31.79 million by the first quarter of 2010.

The company said it proposed to issue up to 288.97 million shares of 10 sen each together with up to 288.97 million warrants on the basis of two rights shares and two free warrants for every five existing Frontken shares held.

In a filing to Bursa Malaysia yesterday, it said the issue price of the rights shares has been fixed at 11 sen.

The price represents a 38.9% discount to the theoretical ex-rights price of 18 sen, and 45% discount to Frontken’s closing market price of 20 sen on Tuesday.

Frontken said 47% or RM15 million of the proceeds would be used to repay borrowings. As of Sept 30, its long- and short-term borrowings stood at some RM48 million.

It said assuming all the warrants were fully exercised at the set price of 18 sen each by the end of the five-year tenure, it could potentially raise up to RM52 million.

Commenting on the rights issue, Frontken executive chairman and managing director Willie Wong said: “It will reduce Frontken group’s net gearing of 0.3 times, thereby providing significant funding headroom and putting Frontken in a strong financial position to seize future investment opportunities for organic and inorganic growth.”

In a separate statement, Frontken said net profit fell by 17% to RM4.96 million for its third quarter ended Sept 30, 2009, from RM5.98 million a year earlier.

Revenue rose 8% to RM35.66 million from RM32.99 million. Earnings per share was 0.7 sen from 1.2 sen.

For the nine-month period, Frontken’s earnings fell 53% to RM7.72 million, while revenue increased 4% to RM103.01 million.

This article appeared in The Edge Financial Daily, November 26, 2009.