Price chart of DBS adjusted for rights dilution
(Blue box: closed lower than open.
Transparent box: closed higher than open.)
(Blue box: closed lower than open.
Transparent box: closed higher than open.)
The largest Southeast Asian lender announced on 22 Dec that it was raising S$4 billion via a rights issue of one rights share for every two existing shares at S$5.42 per rights share.
As with most rights issues, investors’ knee jerk response resulted in a sell-down of DBS shares by 48 cents (about 5%) the very afternoon it resumed trading.
It had closed at S$9.85 prior to its SGX announcement.
Subsequently, DBS’ share price drifted down toward its 5-year low of S$9.04 (price is before rights adjustment) on 23 Dec.
Some investors who saw value at that juncture bought the shares for its cum-rights entitlement.
After all, the rights issue price was at a steep 35% discount to theoretical ex-rights price when the issue was announced.
20% pay-off so far
The strategy is paying off on two counts:
* Firstly, the actual ex-rights price was 7-8% above theoretical ex-rights price (based on last cum-rights close of S$9.25). In addition, the stock’s last close price of S$9.56 yesterday exceeded even the S$9.04-S$9.37 range during its cum-rights period!
* Secondly, the above payoff also spells good news for holders of its nil-paid rights, the value of which rises in tandem with DBS ordinary shares.
In its first day of trading yesterday, the nil-paid rights closed at S$4.05, compared to theoretical nil-paid rights value of S$2.55 (based on last cum-rights close of S$9.25).
In short, a punter who bought 1,000 DBS shares at its cum-rights close price of S$9.25 now sits on paper gains of some 20% within a holding period of a mere few weeks!
Hartawan & HG Metal
The rights issues of small-caps like vessel charterer Hartawan and steel stockist HG Metal offered at close to market price were met with favorable response.
Closing at 7 cents yesterday, Hartawan’s stock price has gained some 40% since its rights issue announcement while HG Metal’s last close price at 11.5 cents meant gains of 15%.
| Rights Issues | DBS | Hartawan | HG Metal |
| Terms | 1 for 2 | 1 for 4 | 1 for 2 |
| Issue price | S$5.42 | 4.5 cents | 9 cents |
| Announcement date | 22 Dec 2008 | 2 Dec 2008 | 25 Nov 2008 |
| Ex-rights date | 29 Dec 2008 | 15 Jan 2009 | 21 Jan 2009 |
| Trading in nil-paid rights | 6-14 Jan 2008 | To be announced | To be announced |
| Last date for acceptance and application of excess rights shares | 20 Jan 2008 | To be announced | To be announced |
| Commencement of trading of rights shares | 2 Feb 2008 | To be announced | To be announced |
