Overview
What Is an Irredeemable Convertible Unsecured Loan Stock (ICULS)?
An irredeemable convertible unsecured loan stock (ICULS) is a hybrid security that has some qualities of a debt instrument and some characteristics of an equity warrant. Like a bond, an ICULS pays a fixed interest coupon to the holder semi-annually or annually at a predetermined rate. Like a warrant or a convertible bond, an ICULS can be converted into common shares of stock, which can appreciate in value for the investor.
ICULs are issued by governments or companies seeking to finance existing operations or new projects. They are especially common in Malaysia, where young or financially weak companies use them to gain access to new capital.
KEY TAKEAWAYS
Irredeemable convertible unsecured loan stock (ICULS) refers to hybrid shares of common or preferred stock that used borrowed funds from investors.
Like convertible bonds, ICULS can be converted into newly issued shares of common stock at a set conversion ratio and price.
ICULS loans are not secured by any collateral, making them more risky and subordinate to other forms of securities.
Understanding an Irredeemable Convertible Unsecured Loan Stock
ICULS's are called "loan stocks" because investors are essentially loaning funds to the issuer. In return, investors enjoy periodic interest income until the ICULS is converted into equity from which the holders receive dividends declared.
The ICULS can be converted to equities at any time up to the expiration date. Some ICULS's require a mandatory conversion when they mature. On this date, the conversion is done automatically, regardless of whether the holder of the security surrenders them or not.
Upon issuance, the ICULS specifies the conversion ratio at which its underlying loan can be converted into stock (one of its distinctions from a conventional warrant). For example, if the conversion ratio is 20:1, this means that one ICULS can be converted into 20 common shares.
The conversion price is the price at which ICULS can be converted into common shares, and it is determined by the conversion ratio. If an ICULS is trading for a nominal value of RM1,000 with a conversion ratio of 20, then the conversion price is RM1,000/20 = RM50. The holder has no choice but to receive the 10 underlying stocks even if the current market price of the stock is less than RM50.
Pros and Cons of Irredeemable Convertible Unsecured Loan Stock
If the current market price of the stock at the time of conversion is less than the conversion price (conversion price RM 50 and market price RM 40, say, using the above example), the ICULS is said to be out of the money. In this case, the holder of the security will be required to pay the difference between the conversion price and the stock price in order to receive the underlying shares. On the other hand, if the stock price is higher than the conversion price, the ICULS is in the money, and the holder receives the stipulated number of shares without having to pay any additional cost.
Special Considerations for Irredeemable Convertible Unsecured Loan Stock
The loan given to an ICULS issuer is not secured by collateral. In the event of default, there is no guarantee that holders will be able to recover their principal investments and future coupon payments. In addition, ICULS cannot be redeemed for cash (hence the "irredeemable" in their name)—a key way in which they differ from conventional convertible bonds. Since they are unsecured and can't be cashed in, ICULS are ranked low on the hierarchy of claims and are subordinate to all other debt obligations of the company.
When irredeemable convertible unsecured loan stock is converted, new shares are issued. When new shares are issued, this results in full dilution for existing shareholders in the company as the total number of shares outstanding increases, leading to a decrease in earnings per share (EPS).
Reference:
By TROY SEGAL
Troy Segal is an editor and writer. She has 20+ years of experience covering personal finance, wealth management, and business news.
Reviewed by JEFREDA R. BROWN
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Aeon Credit's rights issue oversubscribed by 3.31%
By Anette Appaduray / theedgemarkets.com
12 Sep 2017, 10:40 pm
main news image
KUALA LUMPUR (Sept 12): Financing company Aeon Credit Service (M) Bhd's rights issue of 432 million irredeemable convertible unsecured loan stocks (ICULS) has been oversubscribed by 3.31%.
In a filing with Bursa Malaysia today, the group said it received valid applications and excess applications for 446.30 million ICULS.
"This represents an over-subscription of 3.31% over the total number of rights ICULS available for subscription under the rights issue," it said.
The group announced the three-year 3.5% ICULS in March. It was offered on the basis of two ICULS for every one existing share held, at RM1 each.
The group at the same time announced a one-for-two bonus issue of 72 million new shares at an issue price of 50 sen each.
The rights ICULS are expected to be listed on the Main Market of Bursa on Sept 21, the group said.
Aeon shares closed 12 sen higher at RM13 today, for a market capitalisation of RM2.87 billion.
https://theedgemalaysia.com/article/aeon-credits-rights-issue-oversubscribed-331
OTHERS AEON CREDIT SERVICE (M) BERHAD ("THE COMPANY" OR "AEON CREDIT") - NOTICE TO HOLDERS OF RM432,000,000 NOMINAL VALUE OF 3-YEAR, 3.5% IRREDEEMABLE CONVERTIBLE UNSECURED LOAN STOCKS 2017/2020 ("ICULS") IN RELATION TO THE FINAL INTEREST PAYMENT AND THE MATURITY OF THE ICULS
AEON CREDIT SERVICE (M) BERHAD
Type Announcement
Subject OTHERS
Description AEON CREDIT SERVICE (M) BERHAD ("THE COMPANY" OR "AEON CREDIT")
- NOTICE TO HOLDERS OF RM432,000,000 NOMINAL VALUE OF 3-YEAR, 3.5% IRREDEEMABLE CONVERTIBLE UNSECURED LOAN STOCKS 2017/2020 ("ICULS") IN RELATION TO THE FINAL INTEREST PAYMENT AND THE MATURITY OF THE ICULS
The Board of Directors of the Company wishes to announce that pursuant to the terms and conditions stipulated in the Trust Deed dated 28 July 2017 constituting the ICULS issued by the Company on 15 September 2017, the ICULS will mature at 5.00 p.m. on Tuesday, 15 September 2020 (“Maturity Date”).
After 5.00 p.m. on the Maturity Date, the ICULS shall cease to bear interest and all outstanding ICULS shall be automatically converted into fully paid-up new ordinary shares at the conversion price of RM10.99 for every one (1) new ordinary share.
The final interest payment of the ICULS at the rate of 3.5% per annum for the period from 16 September 2019 to 15 September 2020 will be paid on the Maturity Date to all ICULS Holders whose names appear in the Company’s Record of Depositors of ICULS as at the close of business at 5.00 p.m. on Tuesday, 8 September 2020.
The Notice to Holders of ICULS in relation to the final interest payment and the maturity of the ICULS will be despatched to the ICULS Holders and advertised in newspaper on Friday, 14 August 2020.
This announcement is dated 13 August 2020.
This article first appeared in The Edge Financial Daily, on March 27, 2017.
AEON Credit Service (M) Bhd
(March 24, RM15.98)
Maintain outperform with an unchanged target price of RM17.76: In a Bursa announcement yesterday, AEON Credit Service (M) Bhd (AEONCR) proposed a 1-for-2 bonus issue that will involve the issuance of 72 million bonus shares, with existing 144 million AEONCR share capital to be increased to 216 million shares. Note that the bonus issue will be completed in a single issuance and is expected to be completed during the third quarter of 2017. We laud the move as the proposed bonus issuance will address the share liquidity issue that has been plaguing the group for years. This will also reward its loyal investors as well as facilitate possible equity-linked fundraising exercises in the future through a larger share capital base.
In the same announcement, the group has also proposed renounceable rights issue of 432 million irredeemable convertible unsecured loan stock (Iculs), with three-year minimum 3.5% Iculs on the basis of two Iculs for every one existing AEONCR share held. Based on the terms of the Iculs, the Iculs holders can convert their Iculs anytime from and including the date of issuance of the Iculs. The proposed renounceable rights will raise RM432 million cash (100% of its RM1 nominal value) that will be used to: (i) improve its capital adequacy ratio (CAR) that will facilitate the build-up of an adequate level of capital buffer and to support continuous business growth, (ii) improve the group’s liquidity and financial flexibility by strengthening its financial position as well as (iii) provide the shareholders the opportunity to participate in an equity offering on an equal basis without diluting their interests upon conversion of the Iculs (with the assumption that all portions are fully subscribed respectively).
For illustrative purposes, assuming full conversion of Iculs, the CAR will be improved to 28.1%. Due to the time frame to implement the proposed rights issue and the potential share price movement of AEONCR during this period, the conversion price for the Iculs has not been fixed.
In terms of the group’s prospects, loan demand from AEONCR’s targeted customers (retail market) is still resilient, thanks to its niche market exposure. Most of the financial services providers are facing tougher times in growing their loan portfolios amid the current economic condition. We are keeping our gross financing receivables growth assumption rates of circa 9% for finanical year 2017 (FY17) to FY18. Besides its healthy loan growth, we also like its decent asset quality with non-performing loans expected to hover between 2% and 3% (on seasonality), healthy CAR, which is expected to be at a comfortable 20% versus Bank Negara Malaysia’s CAR requirement of 16%, and higher return on equity of >20% in FY17 to FY18, as well as decent dividend yields of 4% to 5% (based on dividend payout ratio of 38%) which are better than other non-bank financial institutions, as well as most of the banking stocks. — Kenanga Research, March 24
https://theedgemalaysia.com/article/aeoncr-proposes-bonus-and-iculs
28 Jul, 2017 | 04:33
AEON Credit Service (M) prices rights issue
Author Sylvia Cycil
Theme Insurance
AEON Credit Service (M) Bhd. priced its planned rights issue of 432 million irredeemable convertible unsecured loan stocks, or ICULS, to raise 432 million ringgit.
The conversion price for the rights ICULS was set at 10.99 ringgit for each new share, according to a July 27 release. The final entitlement basis for the issue is two rights ICULS for every one existing share held.
CIMB Investment Bank Bhd. is the principal adviser and lead arranger for the issuance.
As of July 27, US$1 was equivalent to 4.28 Malaysian ringgit.
https://www.spglobal.com/marketintelligence/en/news-insights/trending/t8gepulfcegnnjdh00h5sa2
https://login.aeoncredit.com.my/ul/1545390907756_18_dec21_aeon_credit_presentation_slides_3q_fye19_update__seg_breakdown_.pdf
Aeon Credit presentation slides
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