• ELITE is set to raise gross proceeds of approximately £28mn at 0.27 pence for each Preferential Offering Unit, which represents a 10% discount to the volume-weighted average price (VWAP) of 0.30 pence per unit.
• The theoretical ex-rights price, calculated based on the current market price, stands at 0.286 pence. We recommend subscribing if the share price remains above 0.286 pence.
• We reiterate our BUY recommendation with an unchanged DDM-TP of 36 pence. Despite possible dilution in the near term. The strengthened financial position, achieved through reduced gearing, will provide a buffer against macroeconomic uncertainty.

Fully underwritten and non-renounceable prefereral offering

ELITE intends to issue 103,354,690 new units on the basis of the 214 Preferential Offering Units for every 1,000 existing units, in order to raise gross proceeds of c.£28.0mn. c.£27.0 million (96.4% of the gross proceeds) will be allocated towards debt repayment, aiming to decrease the overall leverage by 6.1% to 43.5%. £1.0mn (c.3.6% of the gross proceeds) to pay for the fees and expenses. Sunway RE Capital Pte. Ltd intends to subscribe for any Excess Undertaking Units left after the Pro Rata Units, maximum of c.£16.1mn to 14.9% unitholding (+ 9.1%).

The Positives

+ Fully underwritten and non-renounceable. Maximum of £24.7mn (88.6% of the total proceeds) will be subscribed by sponsors and substantial unitholders of ELITE and the remaining balance will receive full underwriting from the Singapore branch of CGS-CIMB Securities and RHB Bank.

+ Increase in pro forma distributable income on the back of interest savings from debt reduction. Of the proceeds, 96.4% will be allocated to repay debt, aiming to reduce the aggregate leverage to 43.5%. This strategy will result in a pro forma interest expense savings of £1.1mn. Consequently, the distributable income for the nine months ending in Sep23 is projected to increase from £13.6mn to £14.7mn.

The Negative

– NAV dilutive. Upon completion of the preferential offering, the share base is projected to increase by 21.4% to 586,320,534 Units. Consequently, the NAV per share is anticipated to decrease to 0.4 pence (compared to 0.43 pence in Dec23).

– DPU dilutive. The pro forma distribution is anticipated to rise to £14.7mn due to potential interest savings. However, the DPU is projected to drop 11.3% to 2.5 pence from 2.82 pence as the share base expands.

Source: Phillip Capital Research - 20 Dec 2023