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|