Indospring announced its rights issue offering

Indospring: Rights issue offering at Rp 1,700/share, much lower than current price (INDS, Rp4,575, Buy, TP: Rp5,925)

Through at an abridged prospectus released this morning, Indonesia Market Summaries 8 May 2013, Indospring (INDS) announced its rights issue offering. In total, INDS would issue 210mn of new shares (3 old shares are entitled for 2 new shares) with an offering price of Rp1,700/share, potentially giving a total proceeds of Rp357bn. Cum and ex date are set on June 21 and 24. Indoprima Gemilang as the majority owner (88.1% stakes) would be the standby buyer of the rights issue.

After deducting for underwriting feeds, the net proceeds of Rp354bn would be used for the following purposes: a) about 51.41% (Rp182bn) for purchasing leaf spring machine as it adds additional one production line, b) about 31.07% (Rp110bn) for purchasing machines and developing factory building for the coil spring (particularly hot coil spring), and c) about 17.52% (Rp62bn) for working capital needs. As of FY12, INDS’ capacity utilization was 78% for leaf spring, 67% for hot coil spring, and 69% for cold coil spring.

Using the latest closing price of Rp4,575/share, the proposed rights issue would be very dilutive given the low offering price. The current TERP would be Rp2,749/share, which is 40% lower than the current price. Despite the purpose for capacity expansion, a steep share price downside is imminent at this juncture.