Monday, March 26, 2012

Dividends and Rights Issue

Being a very analytical sort of person, I cannot really understand why listed companies will have a rights issue while also declaring dividends at almost the same time.   My simple mind tells me that rights issue is to access capital while issuing dividends is almost akin to giving away money.  So why ask for more money when you are giving away money at the same time?

Anyone cares to explain?  Speaking about Pacific Andes here.


  1. I wanted to thank you for this great post!! I enjoyed every little bit of it, I have you bookmarked and waiting for all the new stuff you post.
    2005 Buick Terraza AC Compressor

  2. When a company asks share holders for money through rights issue, company knows share holders want to know why??? So company by paying dividends at the same time is saying, "Don't worry if you give me more money, you will get back more money." Well, it may be true or it may not. It up to us to find out. IMHO.

  3. This company is only good at diluting shares to suck cash from shareholders. 3rd rights issue in 6 years. And frequent other forms of shares dilutions through convertible warrants and bonds and even a huge placement done by its subsidiary China Fishery last year.

    Obviously their working capital and capex requirements are far too high, and has proven to be so over the years.

  4. Yes net profits may have gone up by many times over the last 15 years, but I doubt actual EPS has gone up much because the number of issued shares keep going up considerably every year.

    They issue rights before dividends to try to force shareholders to hold onto the stock after the rights was declared. Note that ONLY pre-rights issued shares are eligible for the 1.08 cents dividends. The new shares are not eligible. Therefore if you sold your shares before the rights issue but bought back after ex-rights your new shares will not be entitled to any dividends.

    Very sneaky of this company.

  5. Ah, now you understand the concept of "Borrowing from Peter in order to pay Paul". Haha.

  6. Its a matter if choice for shareholders. They can choose to invest more into company by subscribing to the rights. Dividends applies to all. End result, the ownership percentage can change.

  7. If after the rights issue, you think the company is going to expend its capital business(company's value accrediting), then by all means do your maths and see which is the best choice to take:- 1)Buy more mother shares cum rights. 2)Just subscribe for the entitled rights 3)Subscribed for the rights + Excess rights 4)Sell mother shares but buy the NIL PAID Rights and subscribe.(Assume no cum dividend for mother shares)
    Choice NO. 4 is a rare choice. You only choose this when the theoretical ex-right price is higher. But it happened recently with LippoMall rights issue. In fact it looked at that time it was a "speculating" choice.

    Me? i usually choose No. 3 because there is no such thing as "guarantee" in investment. But for LippoMall recent rights issue, i had chosen No. 4 because i had no mother share then and it looked like there was an "overhang"
    of "NIL-PAID" Rights selling in the Market. Nevertheless, i was fortunate enough to be able to average down 8 times. The 9 time(ex-day) was the cheapest and most attractive but i did not get any. Alamak! It was a kind of scary, imagine i had to average down 8 times. Must always remember this experience. Go slow man.


Popular Posts