ANALYSTS have lowered their earnings forecast for IJM Corp Bhd after the builder said it planned to issue bonds and warrants to raise funds.

ECM Libra Research cut its FY10 to FY12 net profit estimates by 0.9% to 2.1% in anticipation of higher debt levels in the company.

The research firm said it had gathered from IJM Corp that interest rates for the planned bond issue would be favourable. This takes into account current borrowing costs in the country and the assumption of a AA- credit rating assigned to IJM Corp’s existing debt instruments.

“We are positive of the proposal as the company will, effectively, be tapping longer-tenure debts to finance its capital expenditure and investment needs rather than relying on short-term debts.

“(But) we are rather puzzled by IJM Corp’s proposal to issue a new series of warrants which will, effectively, replace the existing in-the-money warrants expiring on Aug 20, 2010. The warrants could, potentially, dilute its earnings by 10%,” ECM Libra added.

The research firm has a fair value of RM5.10 for IJM Corp shares which are rated a hold. IJM Corp said last Thursday it planned to issue bonds with a nominal value of up to RM700 million and undertake a renounceable rights issue of up to 134.93 million IJM warrants.

The warrants can be converted into new shares in IJM Corp, hence, the potential dilution in the earnings per share of the company due to a larger share capital base.

For a start, IJM Corp hoped to raise some RM500 million from the bond and warrant initiatives. This is via the sale of an initial portion of RM500 million worth of debt securities and the 134.93 million warrants which is expected to raise RM33.73 million, assuming  an issue price of 25 sen a warrant.

As such, the bond portion is expected to raise RM466.27 million, which translates into a 6.75% discount to the RM500 million nominal value bond sale.

A substantial chunk of the money raised will be used to refinance IJM Corp’s loans. The funds will also finance IJM Corp’s subscription of rights shares in its 55.14% subsidiary IJM PLANTATION [ PLANTATION  5,594.010  -15.590 (-0.278%) ]S BHD [ IJMPLNT  2.880  0.000 (0.000%) ] and loan stocks issued by Lebuhraya Kajang-Seremban Sdn Bhd, a jointly-controlled entity of IJM Corp, and Kaseh Lebuhraya Sdn Bhd.