Forum Archive Index - May 2000

[Chris <cd@ak.planet.gen.nz>]

John,
I'm not sure which rights issue you are refering to.  Generally a rights 
issue puts pressure on the price of the head share ( eg., Natural Gas 
recently ) because there is more to choose from, ie, heads and rights and 
investors do not like being asked for more cash.  

In the NCH case the head share was marked back from 180c to a low of 
119c.  It was a 4:5 rights issue with a subscription price of 116c, which 
is a big ask of shareholders.  Of course you can dispose of the rights on 
market, in the case of NCH they started out at about 10-12c  and drifted 
as low as 2.5c two days before trading ceased.  Todays head share price 
for NCH is 134c about 15c up on the the theoretical ex rights price if 
you bought at the 2.5c low.

Each issue of course has its' own set of circumstances that make it 
more/less attractive.  In the case of NCH a couple of things to put even 
greater pressure on the price were, (a)  analytsts considered NCH was 
paying too much for Transalta and, (b)  Infratil invoked a little used 
section of the Companies Act to force NCH into acquiring their holding.  
The latter has left an unresolved situation and an overhang of stock.  

In the case of SPE, the issue has been well telegraphed and the head 
price fell severely prior to confirmation of the issue yesterday.  In 
fact the issue is less demanding than originally planned so market 
response might just be a bit more accommodating.

I am not recommending SPE but hope this helps.

Chris
cd@pl.net       


John Wedde wrote:
>This may sound like a stupid question but hey, isn't the only stupid
>question the one you don't ask?
>My broker tells me that a rights issue will drive down the head share price.
>Why? He tried to explain this to me but 9.30 came around and he became busy!

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