Sabana Shari'ah REIT

[felixleong]

to an investors, $1 for sabana might be a value bet for its 9% yield
but the same investor would not wanna buy anymore if it goes higher (any price above $1.00)

but for an investor willing to take anything 8% yield or higher,
he might be willing to pay up to $1.20

as such I do believe that price does matter, because a rights issue is no different from buying from open market, just that its at a discount


past price does matter!

lets say you bought some shares of Company ABC at $1.00 yesterday, because you think its intrinsic value is $2.00 (yeah, Mr Market when crazy)
the next day mr market wants to sell u again, but now the price is at $1.50~ would you wanna buy more?

going back to sabana reit, let me give an extreme example
if Sabana now trades at 2 times book value, say the market price of $2.00
would u wanna take up the rights issue of say $1.50?
or would u prefer other institutional investors to take up the placement at $1.50 instead?

[NTL]

lets say an investor previously bought 10 lots of sabana at $1.00, the current price is around $1.14
the current yield is around 8.5%

sabana makes an acquisition on a new industrial property paying 8.5% too

would he prefer sabana do to a placement at $1.10 to other investors
or would he prefer sabana to do a rights issue at $1.05 and pay for it himself?


what would be the case like if the investor's purchase price for sabana was $1.20 instead?

Whether placement to institutions, or rights to existing shareholders, the price of the units will likely be adjusted accordingly. Unless the placement is at same or HIGHER price, then it will benefit the existing shareholders, which is very rare to non-existence.

---

lets say you bought some shares of Company ABC at $1.00 yesterday, because you think its intrinsic value is $2.00 (yeah, Mr Market when crazy)
the next day mr market wants to sell u again, but now the price is at $1.50~ would you wanna buy more?

going back to sabana reit, let me give an extreme example
if Sabana now trades at 2 times book value, say the market price of $2.00
would u wanna take up the rights issue of say $1.50?
or would u prefer other institutional investors to take up the placement at $1.50 instead?

To me, it is given a choice for the dilution. Every shareholder should have a choice to buy more at a discount to present price, not just those institutions. If a shareholder don't wish to participate, another shareholder may take up the extra rights coz he want it.

To me, a placement to institution is a dilution where a shareholder is not given the chance to voice out. Something which I am not very happy with.

Let me give an example myself.

A company of asset of $1B, with loan of $600M, having 400M shares, now trading at $2. So the PB is 2, like your case. Company current dividend yield is 6%, and the loan interest is 4%.

The company is issuing 400M new shares at $1.50, either thru rights or placement, to pay off all the loans. Will you want to subscribe?

[freedom]

to an investors, $1 for sabana might be a value bet for its 9% yield
but the same investor would not wanna buy anymore if it goes higher (any price above $1.00)

but for an investor willing to take anything 8% yield or higher,
he might be willing to pay up to $1.20

as such I do believe that price does matter, because a rights issue is no different from buying from open market, just that its at a discount


past price does matter!

lets say you bought some shares of Company ABC at $1.00 yesterday, because you think its intrinsic value is $2.00 (yeah, Mr Market when crazy)
the next day mr market wants to sell u again, but now the price is at $1.50~ would you wanna buy more?

going back to sabana reit, let me give an extreme example
if Sabana now trades at 2 times book value, say the market price of $2.00
would u wanna take up the rights issue of say $1.50?
or would u prefer other institutional investors to take up the placement at $1.50 instead?

Clearly, you and I have different understanding about dilution and yield.

If a stock is worth $10, I bought it at $5 in the past. If the company diluted the existing shareholders by placement to institution for $8. Eventually, the stock probably is only worth $9. My shareholding is diluted and I will not get the real underlying value of my investment, which is $10. But if I was given a chance for the placement, $9 would be the same as $10 in the past, eventually, I was given the full value $10.

[NTL]

to an investors, $1 for sabana might be a value bet for its 9% yield
but the same investor would not wanna buy anymore if it goes higher (any price above $1.00)

but for an investor willing to take anything 8% yield or higher,
he might be willing to pay up to $1.20

as such I do believe that price does matter, because a rights issue is no different from buying from open market, just that its at a discount


past price does matter!

lets say you bought some shares of Company ABC at $1.00 yesterday, because you think its intrinsic value is $2.00 (yeah, Mr Market when crazy)
the next day mr market wants to sell u again, but now the price is at $1.50~ would you wanna buy more?

going back to sabana reit, let me give an extreme example
if Sabana now trades at 2 times book value, say the market price of $2.00
would u wanna take up the rights issue of say $1.50?
or would u prefer other institutional investors to take up the placement at $1.50 instead?

Clearly, you and I have different understanding about dilution and yield.

If a stock is worth $10, I bought it at $5 in the past. If the company diluted the existing shareholders by placement to institution for $8. Eventually, the stock probably is only worth $9. My shareholding is diluted and I will not get the real underlying value of my investment, which is $10. But if I was given a chance for the placement, $9 would be the same as $10 in the past, eventually, I was given the full value $10.

Same here. I will get the placement at $8, and sell off at $9. Net net will be the same for me,

[Greenrookie]

Rights and placements are usually at a discount of the av. Of last trade price of n days or weeks. I have not seen placement of units for reits at a premium, maybe a married deal at premium, but not new placement. People who invest money in reits ESP those with significant gearing will always standby some money for rights to prevent dilution. Placement is worse, because I dun get to participate at all.

I wonder why sabana will do a placement when they just secure a MTN for standby? My guess is they will secure the acquisition thro the MTN notes and if they are prudent, refinance the 2014 loan together with it. Then they will ask for a rights.

If placement is very small, I might still stay put, if placement is large, I will question management care for shareholders value, and I will vote with my legs.

[Temperament]

i think company goes for private placement instead of rights for the shareholders/public, must have its own reasons.
i think one reason is speed. Another reason, current shareholders/public may not accept the rights if there is not enough premiums.
Can anyone share more reasons why Company choose private placements over rights issue?

Not long ago, i think this year only, i remember NOL try to issue preference shares (dare not try rights issue at all)but was not favoured by the market. In the end NOL had to sell their HQ office at Tanjong Pagar.
That proves that the Market is usually very alert. i may be sleeping at times.

[CY09]

Other reasons for placement may include giving shares to an established investment figure or roping in a partner who can provide synergy with your business.

[Stocker]

Main reason is can raise fund almost immediately without having to call for EGM which takes weeks and may need to appoint underwriter, all these cost expenses and time consuming.

[Temperament]

Main reason is can raise fund almost immediately without having to call for EGM which takes weeks and may need to appoint underwriter, all these cost expenses and time consuming.

Underwriters?
Rights issue are usually covered by underwriters and it cost money. But i remember one right issue i think was IPC or one of the S-CHIPs did not have underwriters. I don't bother to read further or care about what happen next?
Is it wise to shun rights issues without underwriter cover?
What happens if the rights issue is under-subscribed? Example, if only only 10% of rights are taken up?

[Greenrookie]

Sometimes, if the controller stakeholder is also the manager/sponsor wants to increase its stake, without pushing up the price, might go for placement. IIRC, it happens to First Reit before