The 2 cash-call methods have been given very different market treatments
By JOYCE HOOI 26 October 2009
(SINGAPORE) The rights issue must, ironically, be feeling rather wronged. Used frequently by companies at the beginning of the year before the market had rallied, rights issues have been unceremoniously cast aside in favour of share placements.
As far as secondary fundraisings go, these two cash-call methods have been given vastly differing treatments by the market this year.
While stock prices have seen a 36 per cent increase on average in the 30 days before the announcement of a share placement, a jittery market sold down City Developments and CapitaLand stock on rumours about rights issues earlier this year.
The rights issue had been associated with a bearish market that firms did not dare to tap and a sign of tighter times ahead, while share placements have come to symbolise the market’s bullish streak and acquisitions in the offing.
‘We have definitely seen an increase in share placements, since the second half of this year. With improved market sentiment, companies are more willing to raise funds via share placements,’ said Serene Seow, CIMB’s head of equity capital markets.
‘Earlier in the year, right issues were more popular, as the market conditions then had not been conducive for share placements.’
In a volatile market that has risen with unsettling alacrity since March, the share placement has also outclassed its lumbering peer.
Rights issues take about two months to complete from the announcement date, compared to two weeks for a placement exercise.
‘Also, rights issues require financial support from the controlling shareholders, and there may be takeover issues for consideration in some cases,’ said Ms Seow.
The share placement’s offer information statement, which runs over 50 pages and lists the finer details of the placement and company’s financials, usually takes two weeks to be developed, but can be rushed out in three days, according to industry insiders.
After the in-principle approval by the SGX, which takes about seven market days, things move at a fairly rapid clip - the new shares could be issued the next day and listed the day after that.
From the retail investor’s standpoint, it remains to be seen who wins in a placement deal.
To begin with, existing shareholders are not afforded the option of buying the shares like they are in a rights issue, and face the unappealing prospect of share price dilution.
In that case, they will have to hope that the market takes a shine to the placees, such as Olam’s Temasek and Noble’s China Investment Corporation.
In any other case, however, the stock’s future price movement is anyone’s guess. ‘Sometimes, the benefit can only be seen in the mid to long term,’ said Ding Hock Chai, co-head of corporate finance at Kim Eng Capital.
For retail investors hoping to hitch a ride on the gravy train post-placement, a fairly good indicator of how the market will treat a stock 30 or 90 days later lies in its price movement in the weeks leading up to the placement.
OKP Holdings, for example, saw its share price rise 92 per cent in the 30 days before its placement announcement - one of the biggest jumps among the 43 issues. 90 days after the placement announcement, however, the price had slumped 10 per cent, underperforming the market by 35 per cent.
‘If the price had risen quite a lot in the weeks leading up to the placement, people might not be willing to buy the share at a small discount, even if we tell them that there is more upside opportunity,’ said the head of an equity capital markets division of a retail bank in Singapore.
On average, the 43 comparable share placements this year saw a return of 36 per cent in the 30-day run-up to their placement announcements.
Paling in comparison, average returns 30 and 90 days after the announcements stood at 6 per cent and 17 per cent, respectively.
It would seem then that the best time for retail investors to buy into a stock is before they know that they should.
Clouding the crystal ball further, the SGX relaxed regulations on offer price discounts to the share price earlier this year.
‘Now, the company can save time without having to go through an EGM if the discount is more than 10 per cent, but less than 20 per cent. The time from negotiation to market for these deals has been shorten significantly. This should bode well for the market,’ said Mr. Ding.
This could backfire on firms, another equity capital markets insider noted. ‘With this regulation, everyone is going to squeeze the listed firms for a discount of no less than 20 per cent.’
Regardless of whether the placee is Temasek Holdings or a faceless investor, the undisputed champions of this year’s round of share placements have been the placement agents.
Merrill Lynch Singapore got a 1.25 per cent cut of the Noble group placement in September which will yield gross proceeds of $1.2 billion, according to Bloomberg data.
Placement fees this year have ranged from one per cent for Credit Suisse and Nomura Singapore in the $102.4 million Raffles Education Corporation placement, to 5 per cent for Sterling Coleman in the $14.3 million China Animal Healthcare deal.
Like the Donna Summer song, placement agents stress that they work hard for the money.
‘In many of our placements deals, the corporates are our existing clients and on a continual basis, we organise roadshows, investor meetings as well as have research coverage on the companies,’ said CIMB’s Ms Seow.
Now, like the rest of the song goes, shareholders can only hope that the market treats share placements right.
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Placements knock out rights issues in 2009
The 2 cash-call methods have been given very different market treatments
By JOYCE HOOI
26 October 2009
(SINGAPORE) The rights issue must, ironically, be feeling rather wronged. Used frequently by companies at the beginning of the year before the market had rallied, rights issues have been unceremoniously cast aside in favour of share placements.
As far as secondary fundraisings go, these two cash-call methods have been given vastly differing treatments by the market this year.
While stock prices have seen a 36 per cent increase on average in the 30 days before the announcement of a share placement, a jittery market sold down City Developments and CapitaLand stock on rumours about rights issues earlier this year.
The rights issue had been associated with a bearish market that firms did not dare to tap and a sign of tighter times ahead, while share placements have come to symbolise the market’s bullish streak and acquisitions in the offing.
‘We have definitely seen an increase in share placements, since the second half of this year. With improved market sentiment, companies are more willing to raise funds via share placements,’ said Serene Seow, CIMB’s head of equity capital markets.
‘Earlier in the year, right issues were more popular, as the market conditions then had not been conducive for share placements.’
In a volatile market that has risen with unsettling alacrity since March, the share placement has also outclassed its lumbering peer.
Rights issues take about two months to complete from the announcement date, compared to two weeks for a placement exercise.
‘Also, rights issues require financial support from the controlling shareholders, and there may be takeover issues for consideration in some cases,’ said Ms Seow.
The share placement’s offer information statement, which runs over 50 pages and lists the finer details of the placement and company’s financials, usually takes two weeks to be developed, but can be rushed out in three days, according to industry insiders.
After the in-principle approval by the SGX, which takes about seven market days, things move at a fairly rapid clip - the new shares could be issued the next day and listed the day after that.
From the retail investor’s standpoint, it remains to be seen who wins in a placement deal.
To begin with, existing shareholders are not afforded the option of buying the shares like they are in a rights issue, and face the unappealing prospect of share price dilution.
In that case, they will have to hope that the market takes a shine to the placees, such as Olam’s Temasek and Noble’s China Investment Corporation.
In any other case, however, the stock’s future price movement is anyone’s guess. ‘Sometimes, the benefit can only be seen in the mid to long term,’ said Ding Hock Chai, co-head of corporate finance at Kim Eng Capital.
For retail investors hoping to hitch a ride on the gravy train post-placement, a fairly good indicator of how the market will treat a stock 30 or 90 days later lies in its price movement in the weeks leading up to the placement.
OKP Holdings, for example, saw its share price rise 92 per cent in the 30 days before its placement announcement - one of the biggest jumps among the 43 issues. 90 days after the placement announcement, however, the price had slumped 10 per cent, underperforming the market by 35 per cent.
‘If the price had risen quite a lot in the weeks leading up to the placement, people might not be willing to buy the share at a small discount, even if we tell them that there is more upside opportunity,’ said the head of an equity capital markets division of a retail bank in Singapore.
On average, the 43 comparable share placements this year saw a return of 36 per cent in the 30-day run-up to their placement announcements.
Paling in comparison, average returns 30 and 90 days after the announcements stood at 6 per cent and 17 per cent, respectively.
It would seem then that the best time for retail investors to buy into a stock is before they know that they should.
Clouding the crystal ball further, the SGX relaxed regulations on offer price discounts to the share price earlier this year.
‘Now, the company can save time without having to go through an EGM if the discount is more than 10 per cent, but less than 20 per cent. The time from negotiation to market for these deals has been shorten significantly. This should bode well for the market,’ said Mr. Ding.
This could backfire on firms, another equity capital markets insider noted. ‘With this regulation, everyone is going to squeeze the listed firms for a discount of no less than 20 per cent.’
Regardless of whether the placee is Temasek Holdings or a faceless investor, the undisputed champions of this year’s round of share placements have been the placement agents.
Merrill Lynch Singapore got a 1.25 per cent cut of the Noble group placement in September which will yield gross proceeds of $1.2 billion, according to Bloomberg data.
Placement fees this year have ranged from one per cent for Credit Suisse and Nomura Singapore in the $102.4 million Raffles Education Corporation placement, to 5 per cent for Sterling Coleman in the $14.3 million China Animal Healthcare deal.
Like the Donna Summer song, placement agents stress that they work hard for the money.
‘In many of our placements deals, the corporates are our existing clients and on a continual basis, we organise roadshows, investor meetings as well as have research coverage on the companies,’ said CIMB’s Ms Seow.
Now, like the rest of the song goes, shareholders can only hope that the market treats share placements right.
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