Price chart of DBS adjusted for rights dilution
(Blue box: closed lower than open.
Transparent box: closed higher than open.)
DBS’ recent rights issue is turning out to be a winner for punters.

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

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