Comments from my broker.

B) Characteristic of share price performance during right issue

 

(Base on personnel observation only. It not base on statistic, maybe not correct)

 

During the right issue (company rise cash from shareholder), shareholder will entitle to subscriber the right issue if they hold the share till XR date.

 

·         Company will issue free right share (eg Genting R) to entitle shareholder

 

·         Shareholder can sell the right share if they do not want to subscribe the right issue.

 

·         Holder of right share (free or buy from market) are entitle to buy the right issue share at pre-determine price via ATM or cashier order before ?last day of subscription?.

 

·         After ?last day of subscription? the right share is worthless if you do not subscribe the right issue.

 

Below is the share price performance during right issue (quite high chance has this characteristic)

 

A) From announce of right issue to XR

 

Share price do not has much affect by right issue.

 

B) From XR to start trading of right share

 

Share price has slight selling pressure, some forward looking investor do not want to increase invest in this share may sell the share in advance.

 

C) During trading of right share:-

 

It has quite a lot of selling pressure in share price due to

 

·         Quite a lot of foreign shareholder, investor do not has money and fund may sell the right share as they do not want or not convenience in subscribe the right issue.

 

·         This result right share (plus subscription price) is trading at a discount to main share.

 

·         Some investor arbitrage via sell main share and buy the right share,

 

·         Overall there is some chain effect selling pressure downward in share price

 

D) From ?stop trading of right share? to ?issue new share to shareholder?

 

Share price has some rebound due to low price in (C) above

 

E)After issue of new share.

 

There is some selling pressure in share price due to more shares available in market for first two weeks.  After that, the share price will gradually rebound to it reasonable level.

 

Hence best time to buy share if it has right issue is during (C) and last chance to buy is first two weeks of (E).

 

(AA)

 

For Genting share that I highlight 2 weeks ago, if you do not buy during (C), the last good time theoretically is first two weeks of (E) which is first two weeks after 18 Sep 07. As in previous mail, Genting is very good to buy for 3-7 years long term holding.

 

(BB)

 

Imagine you are boss of listed company, you know your company share price is undervalue and you company is going for right issue.

 

·         You can set the right issue price quite near to current share price say 20% below current share price.

 

·         During (B) and (C) stage above, you or people around you just sell/push the share price close right issue price.

 

·         Result very few people subscribe the right issue because share price is close or lower than right issue price.

 

·         You or people around you can buy unsubscribe right share at good price. (compare to the price you sell above)

 

Above maybe is a loophole in right issue.

 

Conclusion:- It maybe a good timing  to buy share you like during it right issue.