From knowledge to experience
My mentor once told me - unless a proposal has been accepted and implemented, and there is an attractive potential profits, please do not risk your limited fund. Finally, I do experience this 'prophecy' from portfolio recently, that is, MBSB.
Case study: MBSB
According to the announcement dated 10 October 2013, MALAYSIA BUILDING SOCIETY BERHAD (MBSB, 1171) proposed to issue two (2) Rights Shares for every five (5) MBSB Shares held, with Issue price RM2.04. Again, in the proposal, it clearly highlights the proforma effects of the Proposed Rights Issue, and emphasises that the proforma is purely for illustration purposes.
Since MBSB is one of my long term invested "business", I have decided to acquire all rights shares. Consequently, in my last acquisition, I decided to buy in extra 5lots to save some transaction fee and to avoid odd lots.
In other words, the final decision from MBSB appears to be not a good news for me in some aspect - odd lot concern.
According to latest announcement dated 10 December 2013:
"RENOUNCEABLE RIGHTS ISSUE ... (“MBSB”) (“MBSB SHARES”) (“RIGHTS SHARES”) ON THE BASIS OF ONE (1) RIGHTS SHARE FOR EVERY TWO (2) EXISTING MBSB SHARES HELD AT 5.00 P.M. ON 26 DECEMBER 2013 AT AN ISSUE PRICE OF RM1.65 (“RIGHTS ISSUE”)"
Total Fund is still the same
First, if you have 1000lots MBSB, based on the previous proposal, you need to pay RM2.04 for 4lots Rights Shares, with total amount of "re-investment" of RM816.00.
Now, if you have 1000lots MBSB, you need to pay only RM1.65 for 5lots Rights Shares, with total amount of "re-investment" of RM825.00 or only around 1% deviation. In other words, both plans are going to raise similar fund from shareholders.
Better Discount than the Proposal
From the latest announcement: "The Issue Price of RM1.65 per Rights Share represents a discount of approximately 28.9% to the theoretical ex-rights price of MBSB Shares of RM2.32 ".
While the previous proposal, the discount is around 21% to the theoretical ex-rights price of MBSB Shares of RM2.59.
What is Rights Issues
Basically, rights issues is not a very good news for me. Because it means somebody want to take money from me, and if I do not want to give out my money, the percentage of my shares in that "business" is going to be decreased.
Back to Basic - Value Investment
Well, nothing is fancy from me, again. My strategy upon this Rights Issues is still very straightforward: if the prospect of MBSB is still positive, and its market price is still can bring attractive return (dividend) in the long term, and I am still unable to find a better option to allocate my cash, then I should just hold it while keep exploring new opportunity as usual.
That's all for today. More fascinating articles and sharing will be updated weekly in Xaivier Blog. So, you are welcome to subscribe our feed to receive our weekly updates
Written by: Xaivier Chia
P/S: The above sharing is solely based on personal insight and information that believed to be reliable. Your valuable feedback are very welcome.