Hot stock: mm2 Asia tumbles 30.8% after news of potential investor, proposed rights issue

SHARES in mainboard-listed entertainment group mm2 Asia sank more than 30 per cent on Monday, as the market began to price in a potential new investment, as well as a proposed rights issue.

This comes a day after the group announced that a Singapore private equity investor is interested in investing in one of its core businesses, without specifying the business area.

The news also comes shortly after mm2 Asia announced that it had, on Feb 2, received in-principle approval for a proposed renounceable underwritten rights issue.

The rights issue aims to raise net proceeds of about S$52.2 million, to be used to pay off the medium-term note due on April 27, 2021, and for general working capital and operations. The issue price of 4.7 Singapore cents for each rights share represents a 60.8 per cent discount to the counter’s Feb 1 close of 12 cents, and a 43.7 per cent discount to its theoretical ex-rights price of 8.35 cents based on its Feb 1 close, being the last trading day prior to this filing. 

The counter finished at a record-low of 8.3 Singapore cents on Monday, down 3.7 cents or some 30.8 per cent, with about 13 million shares changing hands. No married deals were recorded for the day, according to ShareInvestor data.

mm2 Asia had called for a trading halt on Feb 2 "pending the release and finalisation of a material announcement", which was extended till the end of Feb 5.

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In a bourse filing on Sunday evening, mm2 Asia said it has received a non-binding term sheet, expressing interest in a potential acquisition involving taking a minority stake in one of the group's core businesses.

"The terms of this term sheet are being deliberated by the board, and the term sheet has not been entered into as at the date of this announcement," it said, adding that the board may also appoint an independent financial adviser if deemed necessary.

mm2 Asia also noted that confidentiality undertakings prevent it from disclosing the investor's identity or other proposed terms at this stage.

The group's core business is in content production and distribution, including film, television and online releases. Apart from its core business, other business segments include cinemas, concerts and events, and post and digital content production. Catalist-listed Unusual Limited is the events-production unit of mm2 Asia.

In addition to Singapore, mm2 Asia also has a presence in Malaysia, Hong Kong, Taiwan and China. Over the years, it has produced or co-produced and/or distributed more than 20 movies, according to data from the Singapore Exchange (SGX). Some of its notable productions include Ah Boys to Men, which was directed by local filmmaker Jack Neo. 

In Sunday's announcement, mm2 Asia said the term sheet - if entered into - would provide the investor with an exclusive period of 90 days to conduct a preliminary due diligence exercise, and for parties to prepare and negotiate the terms of the binding investment agreements.

For the deal to proceed, terms of the term sheet would need to be finalised, approved by the board, and entered into by all parties. Any potential transaction would also require the binding investment agreements to be negotiated and finalised, with further conditions to follow, including shareholder approval.

There is no certainty that the investment transaction would proceed, nor whether the discussions will result in binding agreements, said mm2 Asia.

The group added that it is making the announcement "to keep its shareholders and stakeholders informed on the developments in its business and on possible corporate actions, particularly in light of the company's proposed renounceable underwritten rights issue".

mm2 Asia made its debut on the SGX's Catalist board back in 2014. It subsequently transferred to SGX's mainboard in August 2017.