Forum Archive Index - July 2003

["tennyson@caverock.net.nz" <tennyson@caverock.net.nz>]

Hi Dean,
 
> 
> Had a look at the RCH website and the size of the shareholdings in
> their last annual report before the rights issue.  It was economic for
> 1,245,231 shareholders to ignore the currency conversion which
> accounts for about $350,000 at the rights issue price.  That leaves
> $1.4 million dollars where it would be uneconomic to ignore it.  In
> some cases very uneconomic.  The fact these investors paid a 12%
> premium for the same asset.  Why?  I would guess that they failed to
> analyse the transaction rationally. Agree?
>

Dean , in pointing to investors holding some 1.4 million dollars worth of 
RCH rights as being 'irrational',  you are assuming that 

1/  Those investors could get to the bank easily.
2/  Those investors valued their own time at $0 per hour.

There are people who live in areas where there are no banks with 
overseas funds facilities.    It may have cost them $100 just to travel to 
the nearest bank to pick up a USD draft.   In my experience banks will 
not send bank drafts out in the post.

Some shareholders might have professionals managing their shares 
who would charge $100 in time just to hop down to the bank to get $US 
funds.  Another alternative explanation: Perhaps some of these 
shareholders are professionals who would have to give away $100 in 
client earnings if they were to go down to the bank and get a draft.  

Yes it is possible that some of those investors did not analyze the 
transaction rationally.     But to prejudge all such investors on the basis 
of figures you extracted from the annual report is IMO not credible.  
You simply don't know what the personal circumstances were of all 
those people. 

> 
> Also managed to get hold of an investment statement for RCH rights
> issue.  In some ways the company is at fault here. All the risks of
> the investment are disclosed by RCH including the risk of your shares
> falling in value (as if we didn't know).  There is no mention of the
> possible risk that they created offering the shares in $US and $NZ,
> the risk of you overpaying for your issue if the $US appreciated (by
> any amount) against the $NZ is not mentioned. Why?  
>
>

There is also no mention of the fact that if your partner was killed in a 
car accident you might be too distressed and distracted to fill out the 
rights application form.  Why not?   Because there is nothing the 
directors of RCH can do to control that circumstance.

Likewise with exchange rate movements.

>
>
>Surely if RCH
> think that investors need to be reminded that their shares can go down
> in value they should have also explained the more complicated possible
> currency risk? no?   
>

The rights price was set in two currencies on the basis that both prices 
were near enough to equivalent.  The 12% movement in USD/NZD 
currency value over such a short time period is unusually large.   You 
can understand why it was not anticipated.     

>
> 
> Now the company (wary) profited by about $160,000 (adjusted) from the
> shareholder (and they were unwary) because the company did not even
> attempt to explain the transaction.  If they unwittingly did it -  bad
> luck I suppose, for the investor.  If they did not explain it and
> hoped that investors might not notice, well.... that is an issue of
> integrity. 
>
>

You are beginning to make it sound like the company expected the 
exchange rate to go a certain way and saw the opportunity to make 
some money out of unsophisticated investors.   If even the best bank 
economists get it wrong with the exchange rate direction, I seriously 
doubt that there were powers within RCH hatching such a scheme.    

If you have some internal company memos with evidence of a 
conspiracy then by all means stop beating about the bush and spill the 
beans.  

There are examples of investor foolishness out there, but I don't think 
this is unequivically one of them.

>
>
>Sorry Snoopy I beg to differ.
> 
> 

That's OK.  You are allowed to  disagree with me you know :-)

SNOOPY


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