Monday, June 20, 2011

CSE Right Issues - Can someone explain ?

One of the things that I have never been able to rationalize is the stock behavior and the pricing patterns by the companies on the CSE. From my limited finance knowledge, what I know is usually right issues are attractively priced so that the existing share holders will be offered the option to buy the shares at a below market rate.

But in the CSE I find this strange trend where the right issue price is above the market price of the share, which means instead of exercising the right the buyer is better off when purchasing the shares in the market. Thus making the right issue irrelevant for at least the minor share holders if not for all.

The latest kid on the right issue block is strangely HNB which for decades been a very attractive share. Unfortunately it seems it has faltered here. The right is priced around 219 bucks but the share is currently trading around the 216 Rupee mark. Unless you are looking for a block of shares for control its more profitable to buy the stock on the market than to subscribe for the right issue.So wonder whether any minority share holders will take it up? If yes why? Anyway to add to the confusion HNB has also priced each stock at a minimum Rs 235 price in a parallel private placing of shares.

Earlier I think the same happened with Seylan bank and a few other shares, can some learnt individual explain what was the thinking from the decision makers when they price like this and how can this phenomenon be explained?! Correct me If I am wrong.

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