Umno to plough RM40mil into Utusan Melayu

Umno will inject at least RM40 million in investments into Utusan Melayu (M) Bhd, the company that publishes Malay daily Utusan Malaysia, through a proposed two-call rights issue.

According to a Bursa Malaysia filing made late yesterday, this would bump Umno's shares in Utusan Melayu from 49.8 percent to 53.1 percent.

However, Umno also gave an undertaking to take up the additional shares which are not taken up by other shareholders. 

If other shareholders do not take up Utusan's rights issue, Umno's voting shares could rise to an approximate 67.2 percent.

According to the Malaysian Code of Take-overs and Mergers 2010, acquiring more than two percent stake would trigger a mandatory takeover offer for all the shares in Utusan Melayu not already owned by Umno.

However, Umno is applying to the Security Commission for an exemption, so that it can support Utusan Melayu's bid to raise funds without further incurring interest costs.

A rights issue is an offer by a company to its shareholder to buy additional shares (also known as rights shares), in proportion to the shares that the shareholders already owns.

A two-call rights issue usually takes place when a company issues shares at a price below the par value, as Utusan Melayu intends to. 

In a two-call rights issue, the shareholder buying the rights shares will pay a portion of the issue price upon application, while the remainder will be taken from retained earnings or reserves of the company.

Umno will pay 68 sen upon application, with the remaining 32 sen per share representing an accounting entry with no cash involved.

The company will get at least RM40 million upon application and a maximum RM73.5 million if all shareholders accept the rights issue.

It will use the funds as working capital and to finance capital expenditure (upgrading its Bangi printing facilities), repay bank loans and defray expenses related to the rights issue.

Losses, poor circulation and gov't advertising

The rights issue comes just as the government has urged all government-linked companies to advertise in the newspaper. 

In 2011 and 2012, agencies under the Prime Minister's Department spent RM1.55 million on advertisements in Utusan Malaysia. 

However, critics in BN and Pakatan Rakyat argue that this is not value for money as the daily's circulation has been sliding down, from a height of 350,000 to about 178,000 a day in December 2012.

According to KiniBiz, the company posted a net loss of RM15.8 million for the financial year ending Dec 2012 - the first time since 2001. 

It continued to bleed into the first-quarter of this year, reporting a net loss of RM8.8 million. 

However, Utusan Melayu returned to the black at the end of June 2013, posting a net profit of RM1.9 million. 

The period included the May 5 general election, which generally sees a boost in political advertising.

"Over the past five full financial reporting years, revenue declined slightly from RM374 million in 2008 to RM345 million in 2012," KiniBizreported.