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POOR TRANSACTION ADVISE-THE CASE OF KCB RIGHTS
Rank: Chief Joined: 1/3/2007 Posts: 18,259 Location: Nairobi
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Sasha wrote:@VVS & Wa_ithaka: Historically, bond issues are always more expensive that rights issues. Whether to raise capital via a rights issue or a bond issue will vary depending on which shoe you wear. For a shareholder, a bond issue is better for obvious reasons. For the management, a rights issue is the cheaper and hustle-free option.
Remember that KCB are raising capital to strengthen their capital base and rein in those crazy operational costs. They have the highest cost to income ratio at 71%. If I was management, I wouldn't want to raise this capital by issuing a debt instrument that imposes obligations to make coupon payment after every so many months.
Like muganda says, the antecedant costs of issuing a bond are quite high compared to those of a rights issue. The initial costs on average hit about 2.5% of the amount being raised, ergo, it would cost KCB about Kshs 375 million just to have a bond issue. Add the annual costs payable to the NSE, the registrars and fiscal agents. Management does NOT own KCB... the shareholders do... So it shud always be looked at from a SHAREHOLDER point of view... In today's market the BOND is cheaper unless the Mgmt does not want to pay a dividend... So if KCB pays 1/- (what did they pay for 2009?) as 'dividend cost' (on 17/-) that is almost 5.5% POST INCOME TAX... A bond's interest payments to lenders is Tax-DEDUCTIBLE... So if the 'interest cost' if 5% the effective post tax cost is closer to 3.5%... Greedy when others are fearful. Very fearful when others are greedy - to paraphrase Warren Buffett
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Rank: Veteran Joined: 1/7/2010 Posts: 1,279 Location: nbi
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I think the bond vs rights issue discussion is best left to CFA-ists and other quacks, though it is interesting that BBK chose to do a bond issue not an RI ac ouple of yrs back when t-bills were a little bit higher (I suspect it was the parent bank that suggested bond). For most of us investors, you are looking at the dilution effect and possibility that you'll get your returns... The Governor of Nyeri - 2017
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Rank: Member Joined: 9/26/2006 Posts: 449 Location: CENTRAL PROVINCE
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The KCB share price in the market has breached the Ksh 18 barrier heading south towards the rights offer price of Ksh 17. The rights option being sold in the NSE have breached the Ksh 0.50 heading south.
The current rights option price of Ksh 0.40 means that the market currently values the KCB share at Ksh 17.40
With two weeks to go before the offer closes, it is worrying that the prediction of the share falling below the offer price of Ksh 17 may very well materialise before the 23rd of July.
The big question would then be why should a shareholder pay Ksh 17 per share via the rights when the same can be bought cheaper in the market?
This could result in many people refusing to take up their rights while those wishing to perform a cost averaging would simply opt to get the same from the market.
Happy hunting.
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Rank: Chief Joined: 1/3/2007 Posts: 18,259 Location: Nairobi
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I sold my KCB... now I await to 'replace' them with exercise my alloted Rights @ 17 or buy Rights at 0.10... Greedy when others are fearful. Very fearful when others are greedy - to paraphrase Warren Buffett
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Rank: Elder Joined: 9/15/2006 Posts: 3,906
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@stocksmaster, Top of the morning greetings to you.
I'd venture that a rights price of 0.40, as per your post, would actually mean price of 17.16 (and 17.75+0.16 for the last trade showing now)
Realise we only received 2:5 (or 40%) rights. I should be getting rid of mine today - roho safi.
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Rank: Veteran Joined: 9/5/2007 Posts: 627
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ditto VVS. Have a bet with a 'TA' that the share price will go below 17 bob. A bet I don't want to lose!
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Rank: Chief Joined: 1/3/2007 Posts: 18,259 Location: Nairobi
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@muganda (BTW, meaning to ask lakini are you Ugandan) @Stocksmaster is CORRECT... Someone who pays 40cts per Right is buying at 17.40 just as someone who pays 10cts ends up with 17.10 as the 'cost'. I have ignored the commission for the moment coz it doesn't add much to the overall cost... Greedy when others are fearful. Very fearful when others are greedy - to paraphrase Warren Buffett
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Rank: Elder Joined: 9/23/2009 Posts: 8,083 Location: Enk are Nyirobi
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someone please clarify to me. If i buy 1 right am i entitled to buy 1 share come the exercise date? In other words how many rights do i need to buy one share at 17/=? Life is short. Live passionately.
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Rank: Chief Joined: 1/3/2007 Posts: 18,259 Location: Nairobi
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Sasha wrote:ditto VVS. Have a bet with a 'TA' that the share price will go below 17 bob. A bet I don't want to lose! Careful on this on coz if subscription is low then price cud drop below 17/- @sparkly - You need 1 Right to 'buy' 1 KCB share... Greedy when others are fearful. Very fearful when others are greedy - to paraphrase Warren Buffett
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Rank: Elder Joined: 9/15/2006 Posts: 3,906
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VituVingiSana wrote:@muganda (BTW, meaning to ask lakini are you Ugandan)
@Stocksmaster is CORRECT... Someone who pays 40cts per Right is buying at 17.40 just as someone who pays 10cts ends up with 17.10 as the 'cost'. I have ignored the commission for the moment coz it doesn't add much to the overall cost... Haha @VVS, I warrant if you met me you'd be quite disappointed - the measure of a man... Now you've not spoken as a shareholder: -sold my shares ~100,000 at 18.50 -presumed if I sell rights at 0.40, I'd get a total price of 18.90 -alas, total amount received totals to 18.50 plus 0.16 only, coz I'd only have ~40,000 rights By the way, is it true that this Rights issue has no roadshows, or other appropriate fanfare?
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Rank: Member Joined: 10/5/2007 Posts: 91
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..now that GK has managed to dump its rights a few moments ago at 40cts onto some unsuspecting "Big Money"...then clearly the Rights will succeed...
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Rank: Chief Joined: 1/3/2007 Posts: 18,259 Location: Nairobi
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@muganda - Different economics for Seller & Buyer... As a seller, you need to divide net 'income' from Rights by number of shares you have... 100,000 KCB = 40,000 Rights Sell 40,000 Rights @ .40 = 16,000/- Sell 100,000 KCB @ 18 = 1.8mn Net proceeds per share = (1,800,000 + 16,000)/100,000 (I have ignored commissions for now coz just an example) Greedy when others are fearful. Very fearful when others are greedy - to paraphrase Warren Buffett
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Rank: Member Joined: 2/8/2007 Posts: 808
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When we raised the flaw in this transaction in this forum and suggested there will be too many rights with minimal interest, people thought we were insane now check!In future KCB should shop well for advisors!
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Rank: Chief Joined: 1/3/2007 Posts: 18,259 Location: Nairobi
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Hi-Lo wrote:..now that GK has managed to dump its rights a few moments ago at 40cts onto some unsuspecting "Big Money"...then clearly the Rights will succeed... Hmmm... seems the Rights will succeed (50% needed) coz folks have bought 123mn+ Rights today! + those exercise the Rights + those who bought Rights + those who will ask for additional shares I think the 50% will be successful... Greedy when others are fearful. Very fearful when others are greedy - to paraphrase Warren Buffett
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Rank: Veteran Joined: 1/7/2010 Posts: 1,279 Location: nbi
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KCb will definitely get the 50% but wengi ni shingo pande i.e. fear of dilution rather than buying into Martin's dreams The Governor of Nyeri - 2017
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Rank: Elder Joined: 9/15/2006 Posts: 3,906
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@VVS, agreed 0.40*40% = 0.16; not ten cents, was calculating mentally.
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Rank: Elder Joined: 9/25/2009 Posts: 4,534 Location: Windhoek/Nairobbery
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VituVingiSana wrote:Hi-Lo wrote:..now that GK has managed to dump its rights a few moments ago at 40cts onto some unsuspecting "Big Money"...then clearly the Rights will succeed... Hmmm... seems the Rights will succeed (50% needed) coz folks have bought 123mn+ Rights today! + those exercise the Rights + those who bought Rights + those who will ask for additional shares I think the 50% will be successful... nice move by GOK...they clearly see where this is headed...although they took to long to sell...the buyer has purchased at 17.40 lets see if he will plunged into losses come next week when the price moves to 17 bob...
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Rank: Chief Joined: 1/3/2007 Posts: 18,259 Location: Nairobi
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@thedeal - If you factor in commissions... the Buyer at 17.40 has done OK... 1) Pays commission on the Rights only not the 17/- 2) Can buy a huge number of shares in one swoop thus cuts down admin issues 3) Buying 123mn shares on the open market will mean the price may start rising... so why not just buy the Rights at a slight premium? Greedy when others are fearful. Very fearful when others are greedy - to paraphrase Warren Buffett
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Rank: Member Joined: 2/8/2007 Posts: 808
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@VVS where do you normally get your stats. My boards read 62m rights. Now Gok had 200+ rights. For success we need subscpritions of 443m rights and from the look of things it appears to be a gigantic order as at now. Bear in mind a lot of retail investors will skip their rights our of ignorance. Typically activity in the rights market is indicative of the success of a rights issue, with GoK unable to sell its entire loot unless someone can force NSSF to buy, I am a bit worried on the success of this issue.
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Rank: Chief Joined: 1/3/2007 Posts: 18,259 Location: Nairobi
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Kausha wrote:@VVS where do you normally get your stats. My boards read 62m rights. Now Gok had 200+ rights. For success we need subscpritions of 443m rights and from the look of things it appears to be a gigantic order as at now. Bear in mind a lot of retail investors will skip their rights our of ignorance. Typically activity in the rights market is indicative of the success of a rights issue, with GoK unable to sell its entire loot unless someone can force NSSF to buy, I am a bit worried on the success of this issue. I use live streaming data... there is Rich + mystocks Chances are KCB will extend the Rights period to capture more 'buyers'... Add Rwanda + Uganda NSSF to the mix... Also some Tanzania funds may buy into KCB... Then there is our NSSF as well... Overall, they will barely make it but they will coz they have KCB Pension Fund + potential GoK buying just enough to get them to 50%... I expect a few Foreign Funds will do as well... KCB screwed up... they should have done Road Shows like Safaricom & Ecobank. Greedy when others are fearful. Very fearful when others are greedy - to paraphrase Warren Buffett
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POOR TRANSACTION ADVISE-THE CASE OF KCB RIGHTS
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