Can you profit from a rights issue?

[Temperament]

only an idiot would purchase the shares on the last cum rights trading day ... the bargain is usually done by purchasing the rights (that usually trade at a discount to the ex rights shares) in their last trading days and then subscribing the new shares.

What a pity that me - being a foreign investor - cannot do that

Do you mean purchasing the "nil-paid-rights" and then subscribe after ex rights? But i think it's usually not trading at a discount to the theoretical ex rights shares price. And even if at a discount, no one is sure what the real ex rights price will be. So the fundamentals of the company and the reasons for asking you for "extra money" still count.

Some sharing of experiences from my younger punting days.

If you are a very small player, or interested only in coffee money, than punting deeply discounted rights issues is doable on a rather consistent basis (i.e. no black swan event during the rights period).

The key is the excess rights application and the priority given to small shareholders to make up for odd lots. Also, based on my experience, for this to work, you cannot do it with "nil-paid-rights" (alone) as you must have (some) shares in your account to qualify for the excess rights.

Cheers!

Thanks for sharing.

i had an experience buying nil-paid-rights not for punting but to subscribe. When there seemed to be an overhang in the market. (At that time i thought the share would be yield accrediting in longer term.) And of course it was trading at a discount to the theoretical ex right price. i were taking a risk if the Market was right, then i would have lost when the share went ex-right. In fact i bought average down the price at least 8 times. The 9 time, i didn't get to buy. The market seemed to reject this share rights issue quite "badly". So it was really crazy for me to do it. But i was buying for long term. i still hold this share and it's in the money, actually since ex-right.
Whew!!!
Average down 8 times. Could you imagine how crazy i were? i don't know whether i will or can do it again?
Nothing is a sure thing yet 8 times average down. if i did not buy all the way average down, but at today price, i still make some money.
Whew!!!
Will i do it again? Perhaps if opportunity knocks at my door, why not?
i think 9 average down buying action is my record until today.

So you see the Market can behave very crazy (inversely) at times yet the ex-right price was actually better than the theoretical ex-right price.
Shalom.
Amen.

[HitandRun]

8 times?! A lot of guts or a lot of conviction or both.

[lonewolf]

My own experience with trading with rights issue have been mixed.

Rem around 10 yrs back, some companies have tax credits to distribute and they were simultaneously doing a rights issue for investors to subscribe using their 'bonus' dividends. I bought into some of these companies at that time - blindly at times.

Some turned out fine while others not so well. So MW is correct that the assessment of the quality of the company and the reasons for the rights issue have to be analysed. For me the winners were those with strong fundamentals including some REITs.

[yeokiwi]

My own experience with trading with rights issue have been mixed.

Rem around 10 yrs back, some companies have tax credits to distribute and they were simultaneously doing a rights issue for investors to subscribe using their 'bonus' dividends. I bought into some of these companies at that time - blindly at times.

Some turned out fine while others not so well. So MW is correct that the assessment of the quality of the company and the reasons for the rights issue have to be analysed. For me the winners were those with strong fundamentals including some REITs.

The stocks that I had that did extremely well were those that had never called for a right issue.(except those rights that used up the section 44 tax credit).

But, those junk stocks that I had owned before, almost all of them had right issues.
Generally speaking, most of the times, right issues are used to shore up the balance sheet than to expand the business.

The list of companies that called for right issues recently are
Gallant Venture
Tiger airways
China Fishery
Federal int
KS Energy
Albedo
Aspial
Moya Asia
Ramba Energy
Olam
Annica
KTL
Digiland
Koon

One look we can see that most of them are so-so stocks.

[Temperament]

8 times?! A lot of guts or a lot of conviction or both.

Both and also maybe i don't think anymore at that time. i say i may do it again if there is another opportunity but i did it in fact up to 9 times (average down) because the coy really had very little debt compare to other coy in the same sector. and dividend yield was O. K. Actually i am puzzled until today why the Market treated this rights issue, depressing the nil-paid-price down almost everyday; especially at the end of the last few ex-right days . i suppose market always tend to over-react either way. If you can "spot" both extremes, then should you buy or sell? i really don't know?

[a74henry]

My own experience with trading with rights issue have been mixed.

Rem around 10 yrs back, some companies have tax credits to distribute and they were simultaneously doing a rights issue for investors to subscribe using their 'bonus' dividends. I bought into some of these companies at that time - blindly at times.

Some turned out fine while others not so well. So MW is correct that the assessment of the quality of the company and the reasons for the rights issue have to be analysed. For me the winners were those with strong fundamentals including some REITs.

The stocks that I had that did extremely well were those that had never called for a right issue.(except those rights that used up the section 44 tax credit).

But, those junk stocks that I had owned before, almost all of them had right issues.
Generally speaking, most of the times, right issues are used to shore up the balance sheet than to expand the business.

The list of companies that called for right issues recently are
Gallant Venture
Tiger airways
China Fishery
Federal int
KS Energy
Albedo
Aspial
Moya Asia
Ramba Energy
Olam
Annica
KTL
Digiland
Koon

One look we can see that most of them are so-so stocks.

Not all the companies rights are worth subscribing to. I often have to make a judgement call based on my research. If I do not subscribe, I usually lose out as the ex-rights share price is usually lower than the current market value.