Shares of cement and chemical-fiber maker Ruentex Industries (潤泰全) tumbled by more than 5 percent yesterday as plans for a NT$6.5 billion (US$218.9 million) rights issue spooked investors.
Ruentex, headed by Samuel Yin (尹衍樑), closed at NT$76.1, down from Monday’s close of NT$80.4 and briefly hit an intra-day low of NT$75.3, according to Taiwan Stock Exchange (TWSE) data.
The stock has underperformed the broader market by 1.9 percent so far this year, TWSE said.
Ruentex on Tuesday said in a filing to TWSE that its board approved plans to issue 100 million new common shares priced tentatively at NT$65 each. That represents a discount of as much as 19 percent from Tuesday’s closing.
The fundraising move, which requires approval from the Financial Supervisory Commission and company shareholders, is expected to be completed by the end of the year, Ruentex said.
The company is hoping to use the funds generated to repay bank loans and lower its debt level, but worries about the shares being diluted sparked a big sell-off, Yuanta Securities Group (元大證券) analyst Yeh Chia-wen (葉嘉雯) said.
For NT$6.5 billion, “the rights issue dilution is about 11.8 percent,” Yeh said in a note yesterday, adding that funds could also be used by the company to support its NT$2.3 billion investment in Ruen Chen Investment Holding Co (潤成投資).
Other analysts said the fundraising was part of Ruentex Group's (潤泰集團) plans to bring Nan Shan Life Insurance Co (南山人壽) public in 2015 at the earliest. Ruen Chen Investment Holding is a major shareholder of Nan Shan Life.
"We expect near-term share price pressure on the back of this fundraising news, but maintain our positive view on the company with its strong non-core investments," Yeh said.