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What Investors Need to Know about Q&M Dental’s Rights Issue

Q&M

Dental services provider Q&M Dental Group (SGX: QC7) had made public on Monday that it will undertake a rights issue that will see it issue up to 140.5 million new shares.

The issue price will be at S$0.10 for each rights share and on the basis of one rights share for every five existing ordinary shares held by a shareholder of the dental firm.

Q&M started from a single clinic with one dental surgeon in 1996. Today, it’s an established and reliable dental healthcare services provider with multi-disciplinary expertise. It now has more than 50 clinics, 5 dental centres and one mobile dental clinic in Singapore along with a small group of associate clinics in Malaysia and China. With its wide network, it currently serves more than half a million patients island-wide and provides services that range from primary dental care to specialist services.

The issue price of S$0.10 per rights share is a steep 78% discount to Q&M Dental’s closing price of S$0.455 on 30 June 2014, the date of the announcement. As of the time of writing, shares of the company are going at S$0.45, down 1.1% for the day.

The rights issue will raise S$13.8 million for the firm after deduction of relevant expenses. The money will be used to strengthen the firm’s financial position and increase its capital base. On top of providing existing shareholders an opportunity to further participate in the growth of the firm, it will also allow Q&M to be less reliant on external sources of funding. The proceeds from the rights issue are also intended to be used for “expansion of dental, medical, distribution and manufacturing businesses of the Company and its subsidiaries”.

As of 31 March 2014, the dental outfit had S$8.9 million in financial liabilities, comprising of bank loans, convertible loans, and finance leases. The floating rate interest rates for these liabilities are at an approximate range of 1.25% to 4%, according to its Annual Report for 2013.

With the possibility of interest rates rising further in the future, it may bode well for the company to issue rights to raise capital from its owners rather than knock on the doors of banks. However, investors have to be careful of a dilution of their stakes if they choose not to take part in the company’s latest rights issue.

Shares of Q&M are currently trading at a lofty 42 times trailing earnings.

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