Who really should feel aggrieved at the SPP? part 1: Shareholders
Quote:
Originally Posted by
horus1
I am making a formal complaint re the different wording on page 3 and 12 and have advised the the company via the above link . They should honour the most advantageous condition for individual shareholders as per page3 or 12. This is plainly very sloppy and they shouldn't get away with it. Where were there lawyers and banks.
I got 61% of the dollar amount of shares that I applied for. Not up there with the foundation holders like Paul Byrnes who got nearly all he asked for. Or even the 'Fat Cats' like Percy. But I will happily bask in the glory of being a 'Mildly Obese Cat' for SPP purposes. So where do I stand on the scale of aggrievement?
No. of Shares EOFY2107 |
74 523 527 |
plus No. of Shares in Placement (based on $25m pool at $3.02 per share) |
8 278 146 |
plus No. of Shares in SPP (based on $5m pool at $3.02 per share) |
1 655 629 |
equals No. of Shares (After Placement and SPP) |
84 457 301 |
The ratio of 'New Shares' to 'Old Shares' is:
84 457 301 / 74 523 527 = 1.133
So by my reckoning, anyone who got more than 13.3% in new shares compared to their previous total, has not had their share in the company diluted. I have now got 14.6% more shares than I had before this exercise. So I guess I came out well, (helped by my holding of bonds of course).
SNOOPY
Who really should feel aggrieved at the SPP? part 2: Bondholders
If we come to the bondholders, who want a good fixed interest bond, I don't see much cause for complaint.
These bondholders are still set to get all their capital back at bond maturity time. There is no change to the bond income as a result of the issue of new shares. One might argue that the new capital raised means a stronger balance sheet and so the risk of the bond capital not being repaid has been reduced. Granted the new capital is meant to fund expansion. So by the time the bonds roll around for repayment this new capital may have already been spent. The option to buy new TRA shares just because you were a bond holder was an unexpected freebie. The problem here is that if you had say $10,000 worth of bonds (a reasonable holding), this would entitle such a bondholder to a number of new shares, based on the equivalent of holding :
$10,000/ $3.75 = 2666 shares
Using the actual pay out rate of some 13.3% to avoid 'dilution', such a bond holder might expect to get:
0.133 x 2666 = 354 shares
If the shares are selling at $3.20 each on market after the issue, and the application price was $3.02 the expected profit would be:
354 x ( $3.22 - $3.02 ) = $70.80
Take a minimum brokerage figure off that $70.80 and there isn't much profit to be made for the bondholder. But the equation changes if you are also a shareholder. Because your small quota of bond eligible shares can be added to a much larger total. And that makes this kind of short term arbitrage possible, if that is what you as a shareholder want to do.
SNOOPY
Who really should feel aggrieved at the SPP? part 3: Optionholders
People who own the bonds will know that holding 'bonds' and holding 'options' that convert to shares is one and the same thing. TRAHB bonds can be thought of as either bonds or options depending on the owners mindset.
For those that think 'options', the biggest benefit will come as the TRA hare price rises above $3.95. Above $3.95, the 5% discount at conversion equates to $3.75. $3.75, it has been dictated, is the maximum conversion price that option holders will pay. If the share price rises higher than $3.95 this increases the discount conversion price to more than 5%, and such an increasingly juicy discount has extra value. The problem is that in the long term a higher share price can only be justified by increasing earnings per share. If a lot of new shareholder capital is issued, such as has just happened, this will reduce earnings per share, at least initially. If this new capital is deployed in such a way that it becomes 'earnings per share positive', then this new capital will likely have the effect of increasing the share price in the longer term. The problem is that 'in the longer term' may mean further out than September 2018 which is when the options convert. It is far from clear that this new share capital has increased earnings per share, and in the short term at least, it is almost certain that earnings per share has been reduced. This means there is a good chance that possible 'super profits', from a conversion discount of much more than 5% have now evaporated. This is a negative.
Furthermore, due to relatively poor TRA share liquidity, it is far from clear whether the option holder will be able to sell their newly issued shares at a premium by arbitraging the market price against the issue price. I should point out here that you can't lose money on this arbitrage because the back up option of simply redeeming the bonds for cash still exists. In truth I am not sure that those assuming the share price would exceed $3.95 by September 2018 were living in a fantasy land. Granted an irrational exuberant market might yet price the shares there. But even pre the recent share issue that would have been a lofty multiple, and probably an unrealistic expectation.
Option holders, like bondholders, still received the chance to receive new shares with the SPP in a way that was not envisaged when they signed up to the bonds. Whether that was enough to compensate for the probable erosion of the 'super conversion discount' is likely a matter of opinion.
SNOOPY