KUALA LUMPUR: Muhibbah Engineering (M) Bhd has proposed to undertake a renounceable rights issue of up to 256.91 million rights shares on the basis of one rights share for every two existing Muhibbah Engineering shares on an entitlement date to be determined later.

       The group said in a bourse filing it aims to raise between RM25.13mil and RM128.46mil from the proposed right issue.

       Based on the indicative issue price of 50 sen per rights shares, the company aims to utilise up to about RM96.69mil from the gross proceeds to the partial repayment of the revolving credit facilities of the group, excluding the company's 58.6%-owned subsidiary Favelle Favco Bhd and its group of companies.

       A maximum of about RM30.87mil will go towards partly financing the general working capital requirements while RM900,000 will be used to defray the estimated expenses of the proposed right issue.

       "In view of the financial position of the MEB Group resulting from decreasing trend in the profit in the FYE 31 December 2019 and loss recorded in the FYE 31 December 2020, the Board is of the view that the gross proceeds raised from the Proposed Rights Issue of Shares of up to RM128.46 million shall serve to meet the Group's immediate funding requirements in the short term.

       "The Proposed Rights Issue of Shares will also assist the Group to reduce its reliance on external funding such as bank borrowings, which may put further pressure on the Group's cashflows arising from the repayment of principal and interest in the future," said the group.

       It added that the rights issue provides an alternative to the group to raise funds to meet its immediate funding requirements while strengthening its capital base without relying on external funding such as bank borrowings.

       Further, the rights issue would also provide an opportunity to entitled shareholders to participated in an equity offering on a pro rata basis at a discount to the prevailing market price.