Star ... Apr11

Having seen its cash pile diminish significantly, Star Publications (M) Bhd is proposing to raise up to RM750 million from the capital market to boost its war chest. The amount makes the proposed exercise Star Publications’ largest fund-raising effort to date.

The proposed fund-raising exercise could increase Star’s gross gearing ratio to 0.82 times, from 0.23 times currently.

It proposed to raise up to RM750 million in commercial paper (CP) and medium-term notes (MTN) for investments, capital expenditure and working capital requirements. It intends to implement CP and MTN programmes with a limit of up to RM750 million in nominal value for each programme. The proposed programmes will have a combined limit of up to RM750 million.

For illustrative purposes, based on Star’s audited consolidated balance sheet as at Dec 31, 2009, and assuming that the maximum amount of RM750 million nominal value of CP and/or MTNs is issued, the ratio of total debt to shareholders’ funds would increase from 0.23 times to 0.82 times.

The CP programme will have a tenure of seven years from the first issuance of the paper while the MTN programme will have a tenure of 15 years.

While the issuance of the CP and MTNs will not have an effect on Star’s issued and paid-up share capital, the company said the proposed programmes will increase its consolidated gearing, with the level dependent on the amount raised. The effect on its gearing will be offset if the proceeds raised are used to refinance existing borrowings.

The effects of the CP and MTN issuances on consolidated earnings will depend on, among other things, the effective borrowing cost of the debt issuances and the use of the proceeds, details of which have not been disclosed at this stage.

On Dec 31, 2010, Star’s cash and cash equivalents stood at RM216.7 million compared with RM773.2 million a year earlier. During the year, the publishing company saw its cash position decrease by RM545.9 million, mainly due to dividends paid and repayment of MTNs.

After deducting borrowings, its net cash as at end-2010 stood at RM121.6 million, compared with RM474.3 million at the end of 2009.   

During the year, Star also acquired more newsprint and its inventory shot up to RM210.5 million compared with RM85.5 million a year earlier.

While this is not the first time that Star has raised funds via the debt market, it is the largest fund-raising exercise for the company, should it raise the full amount.

The company had issued debt papers twice in the past 10 years. The last time it made plans to raise funds via the debt market was in 2004, when it announced that it would raise up to RM350 million via CP or MTN programmes. At that time, the company was sitting on a healthy cash pile of RM258 million.