Friday, September 11, 2009

Rights Issues Like Big Pills, Hard to Take

Rights issues have always been regarded badly by investors. Has there ever been a rights issue that has been warmly welcomed by investors? Investors frown on rights issue because the company wants more money from them. Investors need to think more clearly, the money is in exchange of additional shares. If the investor bought the shares because he/she believed in the story or growth plans of Company A, then why sell when they announce a rights issue? Doesn't the rights issue tie in with the plans? S$1.5B in expected funds raised. Genting Singapore intends to use approximately 60% of net proceeds raised from the rights issue for funding of future acquisitions and/or investments undertaken by the group. The remaining 40% will be used for working capital purposes and includes repayment of bank borrowings.

In my view, most investors should already know that a rights issue was coming, why was that a surprise? If investors sold because they do not want to cough up more money, ok that is understandable. Looking at the shareholders of Genting Singapore, it looks like the biggest burden will be on Genting Berhad to raise the funds. Genting Singapore is just slapping open its palm for more money and a hot growth story.

The Singapore gaming story has taken on wing over the past few weeks following the much improved gaming industry in Macau, so much so that Sands and Wynn are both quickly thinking of lodging IPOs in HK for their Macau operations. The improved sentiment means improved valuations on Singapore casinos.

This is a minor hiccup, I still see more and more analyst reports upgrading their target pricing from S$1.10-1.20 to the S$1.50 level over the next few months.

p/s photo: Park Ji Yoon

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