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Blumont Group Ltd - Why didn't four of its directors fully subscribe to the rights shares?

6/11/2013 – Blumont Group Ltd's 861,002,293 newly-issued rights shares were listed on SGX on October 22.

Now that the rights' shares are listed on the SGX, the directors and substantial shareholders of Blumont have disclosed their change in shareholding interests.

Surprisingly, four directors and three other substantial shareholders didn't subscribe to all of the rights they were provisionally allotted.

This is surprising because one would expect them to be most bullish on the issue as it their brainchild.

Further, substantial shareholders will see a very significant dilution if they don't subscribe to the rights issue.

Also, why wouldn't they buy shares at 5 cents when the market price is more than 20 cents despite falling 90%?

Around the same time, Mr Goh Seh Kiat emerged as the single largest shareholder of Blumont with a 7.55% stake which he acquired at an undisclosed consideration.

Back in July, Blumont Group Ltd proposed a rights issue of one rights share, at 5 cents, for every two shares already held.

The rights issue price of 5 cents was at a discount of more than 96% to the market price of S$1.33, on July 29.

In our earlier story, we already highlighted how former Executive Chairman of Blumont Mr Neo Kim Hock made S$16.57 mln from sale of 'nil-paid' rights just hours before the sell-off on October 4.

Investor Central. Asian insights for global investors. We ask the tough questions of Asian companies which global investors need answers to.

Question
Question

1. Why didn't four of its directors fully-subscribe to the rights' shares?

The board of directors of Blumont proposed a rights issue to the shareholders at the AGM on April 22, 2013.

Subsequently, the shareholders approved the rights issue.

But now it turns out the directors didn't fully subscribe to their rights shares.

Calvin Lim Huan Kim – an independent director of Blumont and IPCO – subscribed to 700,000 shares in the rights issue.

The announcement said Mr Lim didn't exercise 300,000 provisional rights shares and let them lapse.

James Hong Gee Ho – an executive director of Blumont – didn't exercise 12,689,500 provisional rights' shares, but let them lapse.

Mr Hong exercised only 6,804,000 rights.

Lynne Ng Su Ling – an independent director of Blumont and LionGold - didn't exercise 15,550,000 provisional rights' shares and let them lapse.

Ms Ng exercised only 10,850,166 rights.

Neo Kim Hock – the former executive chairman of Blumont – didn't exercise 57,481,739 provisional rights shares and let them lapse.

Having already sold 7.445 mln 'nil-paid' rights earlier in October, Mr Neo exercised only 59,959,274 rights shares.

Together - Calvin Lim Huan Kim, James Hong Gee Ho, Lynee Ng Su Ling, Neo Kim Hock – didn't exercise 86,021,239 rights' shares.

Goh Boon Kok – the lead independent director of Blumont and an independent director of Magnus Energy Group Ltd and Super Coffeemix Manufacturing Ltd – is the only director who exercised all of his 1.5 mln rights .

But we still wonder why four of the directors didn't buy the rights' shares at 5 cents/share when the stock is still trading at about 20 cents, despite falling 90% since October 3.

Do the directors believe the rights issue at 5 cents/share was expensive?

Or, do they expect the stock to fall closer to, or lower than, the rights' issue price?

And in the larger context: why did the directors come up with a rights' issue if they were not willing to put their money where their mouths were?

Question
Question

2. Why didn't IPCO International Ltd subscribe to 4,550,000 rights' shares?

SGX-listed IPCO International Ltd owned a 9.98% stake (170,753,868 shares) in Blumont before the rights issue.

Therefore it was entitled to 85,376,934 provisional rights shares (1 rights share for every 2 existing shares).

But according to an October 23 announcement, IPCO International owns a 9.74% stake (251,580,802 shares) after the rights issue.

So, IPCO subscribed to 80,826,934 rights shares – that's 4,550,000 shares less than total rights shares it was provisionally allotted.

In other words, IPCO either sold the 4,550,000 'nil-paid' rights in the market soon after receiving them, or it just let them lapse.

Blumont's 'nil-paid' rights were traded on SGX from September 26 to October 4.

The 'nil-paid' rights are provisionally allotted rights, without paying the consideration (5 cents/right in this case).

In plain terms, the existing shareholders of Blumont were allotted 'nil-paid' rights (for free) which they could sell on SGX, before 5pm on October 4.

According to the trade data, 22,279,000 'nil-paid' rights were sold in the open market between September 26 and before suspension of trade at 10am on October 4.

Of that, 7,445,000 'nil-paid' rights were sold by Mr Neo Kim Hock.

Therefore that makes us wonder if IPCO sold those 4,550,000 'nil-paid' rights in the open market.

Question
Question

3. Why didn't Clear Water Developments Sdn Bhd exercise any of its rights?

(Total:9 questions)

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