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Morgan Stanley China A Share Fu Message Board

  • jing_sun01 jing_sun01 Mar 19, 2009 4:31 PM Flag

    CAF Announces Rights Offering - Good or Bad?

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    • Here is my take. It may not be correct.

      1) This is not a dividend, because the company pays out nothing to the share holders. I don't like dividend and usually I sell out all my holdings before the record date for the dividend, because after paying dividend, NAV usually drops the same amount. In Canada US dividend is 100% taxable but capital gain is only 50% taxable. Paying dividend is effectively turning my capital gain into my income for taxation.

      2) It sounds like we will get one right for each share hold. Then for every five rights you are allowed to buy one new share. If you are holding 1200 shres, you will allowd to buy 240 new shares. Be carefull about that 40 shres, you may have to pay higher fee when you sell them. I won't have to worry about that because my broker charges flat fee.

      3) This offering is a bulish indication for CAF. The Chinese stock market is recovering. SSEC has just broke above its 200 day moving average. The demand for CAF shares is strong, and the shares are traded at premium recently. My guess is that the company is offering an opportunity for institutional investors to increase their holdings. Without the offering institutional investors have to buy shares through the market and that could push the premium higher. Is 20% a right number? I don't know. Is this a dilution? No. Because the money raised will increase the capitalization propotionately keeping the NAV unchanged.

      4) But, I guess the subscription price is likely lower than the share's market price.

      5) As a result of the offering, the premium will likely be reduced because some of the buyers may buy the new shares through the offering rather than going to the market.

    • I believe share holder will be offer right to purchase CAF common at NAV price.

    • Their notification seems rather sketchy. If one were to buy Monday would the shares be diluted 20%? Are the current holders looking at dilution or will they somehow benefit or break-even. I think MS could have done a better job of explaining things. Frustrating...

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