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FINANCIAL CHRONICLE™ » FINANCIAL CHRONICLE™ » What will happen to PCH rights?

What will happen to PCH rights?

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1What will happen to PCH rights? Empty What will happen to PCH rights? Tue Mar 19, 2013 8:36 pm

dineshfernando


Senior Manager - Equity Analytics
Senior Manager - Equity Analytics
The announced rights issue price is Rs.3/= per share but now it's trading at 2.90. Will PCH go ahead with the rights issue?

As Rishan is stuck with margin loans, he might even reduce the rights issue price to 1/=. Or they might cancel the rights for now until the market picks up. The other possibility is they can push the price up. What can possibly happen?

2What will happen to PCH rights? Empty Re: What will happen to PCH rights? Tue Mar 19, 2013 9:44 pm

NZ BOY

NZ BOY
Moderator
Moderator
oya PCH kavadavth buy karanne na apinam 1 ta neme nikan dunnath .rishan hinda hodata operating vena OGL company ekath 10 n pallehata avith.pau rs 30 ganin gatta minissu.yanna apayak na m ............ta

3What will happen to PCH rights? Empty Re: What will happen to PCH rights? Tue Mar 19, 2013 9:55 pm

Redbulls

Redbulls
Director - Equity Analytics
Director - Equity Analytics
Rights after rights until all of us get wrong. lol!

4What will happen to PCH rights? Empty Re: What will happen to PCH rights? Tue Mar 19, 2013 11:05 pm

knockknobbler


Manager - Equity Analytics
Manager - Equity Analytics
@dineshfernando wrote:The announced rights issue price is Rs.3/= per share but now it's trading at 2.90. Will PCH go ahead with the rights issue?

An interesting issue !
......good that you brought this up .
There may be forum members who have encountered this type of situations in the past.
Hope, someone will tell us the past experience.

5What will happen to PCH rights? Empty Re: What will happen to PCH rights? Wed Mar 20, 2013 6:30 am

Fresher


Moderator
Moderator
This has happened for some time now (most shares), even for solid shares.

I remember this from HNB or even before, then SEYB, VLL and many other shares when the rights issue was announced prices shot down to the issue price first thing next morning. HNB.N for instance is still trading much below the rights price.

The proportion was not high either. So the retailers would have brought it down whether it was 1:1 or 1:5

If the company really needed money, the majority shareholders would try and subscribe all rights even if it is not attractive, since it is a case of raising low cost equity for the company. We as retailers mostly think of profiting from such situations and either sell panicking, or buy for less than the issue price hoping to make a profit.

Although I can't guarantee that the price would nudge up, I can say the rights issue is a much needed one but maybe very late in timing. It again depends how the management performs. If the funds are not used properly, PCH will have no future again.

Refer the other thread where the situation is summarized. March quarter and the result of this issue will be important to make a decision on its future.

6What will happen to PCH rights? Empty Re: What will happen to PCH rights? Wed Mar 20, 2013 8:33 am

Chinwi

Chinwi
Associate Director - Equity Analytics
Associate Director - Equity Analytics
@knockknobbler wrote:
@dineshfernando wrote:The announced rights issue price is Rs.3/= per share but now it's trading at 2.90. Will PCH go ahead with the rights issue?

An interesting issue !
......good that you brought this up .
There may be forum members who have encountered this type of situations in the past.
Hope, someone will tell us the past experience.

This has happened many times . For a good company it should always be a temporary issue and even create unexpected opportunity for intelligent investors. .

For eg. SAMP was trading @ 20-22 in around 1989
To expand the bank they announced 1:1 right @ 10/-
Next day the market price dropped to 10/- - 11/-
I saw many persons shouting in the floor (against Directors & their mothers) because they have lost half of their wealth within a day.
I met an almost collapsed person who invested 100,000 to buy 5000 share @ 20/- in the previous day !. They have never seen this kind of drop before.

Some disgusted right holders sold their rights even at 10 cents. !
Intelligent investors subscribed for all + additional shares.

SAMP performed better using new cash and passed 60/- within few months. It never came back.


In this case,..(PCH)............. I should not say anything because our people know I was against the kindergarten business model of this company from the beginning.

7What will happen to PCH rights? Empty Re: What will happen to PCH rights? Wed Mar 20, 2013 8:51 am

Rapaport

Rapaport
Assistant Vice President - Equity Analytics
Assistant Vice President - Equity Analytics
Are we gonna pay for Rishad's margin trading blunders via rights???

8What will happen to PCH rights? Empty Re: What will happen to PCH rights? Wed Mar 20, 2013 9:13 am

Arena


Assistant Vice President - Equity Analytics
Assistant Vice President - Equity Analytics
Yep,
These crazy set of investors think right issue price is the company share valuation. That is utter madness.

Right issue price is decided based on the capital requirement of the company. For an example if company need 200m for their new developments and company has 20m shares, they can either go for 1 to 1 right issue at Rs.10 or 1 to 2 at Rs.5............So company does not do a valuation and decide the price but they try to make a good deal may be higher than the current net assets value an so on. ( Take Lankem dev. as an example they did it at 25 and people didnt participate since it was a tea project )

So existing share holders get a discount price/Privilege price in lot of right issue.

The issue is if the Mkt is in bear u can see a price appreciation for good right issues and vise-verse.

Always smart investors collect as much as shares at right issue price.

I dont understand this PCH case but hope their will be an opportunity after new share is listed. May be at around Rs. 2.00 to 2.50

I feel it is good if we can analyze this crazy LDEV failed right issue since now the price is around 7 and tea is doing quite well. I don see any good collection yet.

9What will happen to PCH rights? Empty Re: What will happen to PCH rights? Wed Mar 20, 2013 10:31 am

taniya1111


Manager - Equity Analytics
Manager - Equity Analytics
I think this right issue is just waste of money. A good company can go for rights in order to expand their business and make the company more profitable. PC group is crap like CSF which had two right issues recently

10What will happen to PCH rights? Empty Re: What will happen to PCH rights? Wed Mar 20, 2013 11:44 am

knockknobbler


Manager - Equity Analytics
Manager - Equity Analytics
[quote="Chinwi"]
@knockknobbler wrote:

This has happened many times . For a good company it should always be a temporary issue and even create unexpected opportunity for intelligent investors. .
.........................
.................................

Thanks , for the info. Seems you are a veteran in this business, .....from 1980 s'.
appreciate your views /opinions on PCH .
( your previous write up on PCH - It was an objective analysis of a business sector in Sri Lanka , read for a along time )

11What will happen to PCH rights? Empty Re: What will happen to PCH rights? Wed Mar 20, 2013 9:51 pm

Fresher


Moderator
Moderator
@ Chinwi

After reading your previous view I assumed that the attempted rapid growth killed the company (maybe I didn't understand). As per the figure I uploaded, you can see that a particular quarter there has been a suddent increase in (credit) sales and a build up of inventory thereafter.

Now we see a reduction in turnover but improved Gross margins. I have not much idea regarding the plans of the company, but do you not think the company can at least survive if the debt problem (high finance cost) is resolved?

12What will happen to PCH rights? Empty Re: What will happen to PCH rights? Wed Mar 20, 2013 10:30 pm

Chinwi

Chinwi
Associate Director - Equity Analytics
Associate Director - Equity Analytics
@ npp,

actually they should.

My only concern is the billion rupee inventory. As this is a computer hardware company, the business is like selling perishable pathola and karawila.
I have no info in detail about the goods. If the majority is non-out dating gadgets , then it is OK.

Here, I may be over cautious because I have seen some of these guys suffering after stockpiling MB, RAM , floppy drives and VGAs unnecessarily in early days.

13What will happen to PCH rights? Empty Re: What will happen to PCH rights? Wed Mar 20, 2013 10:33 pm

Whitebull


Assistant Vice President - Equity Analytics
Assistant Vice President - Equity Analytics
Well even a good company may have bad times due to many reasons. If the management is wise and talented, With some money they would recover. But here the problem is can we trust this management ? According to their previous track records I would like to say it is hard, but if they learn something from previous experience they might be able to recover.

14What will happen to PCH rights? Empty Re: What will happen to PCH rights? Wed Mar 20, 2013 10:40 pm

Gaja


Associate Director - Equity Analytics
Associate Director - Equity Analytics
npp wrote:@ Chinwi

After reading your previous view I assumed that the attempted rapid growth killed the company (maybe I didn't understand). As per the figure I uploaded, you can see that a particular quarter there has been a suddent increase in (credit) sales and a build up of inventory thereafter.

Now we see a reduction in turnover but improved Gross margins. I have not much idea regarding the plans of the company, but do you not think the company can at least survive if the debt problem (high finance cost) is resolved?

When more and enough quantities available in the open market, why should investors need to subscribe for the rights?

During the IPO stage there was an PC House representative responded for the questions, appreciated if they can give the view for the questions asked in the forum

I feel if the Owners are confidence enough about the future, then they will subscribe for all the rights despite the market price.

In the recent ownership change of ODEL & the subsequent rights issues, the new owners & sellers gave the assurance that they will subscribe for their entitlement, here no such assurances are not coming, i feel if that assurance comes then it MIGHT give some confidence

15What will happen to PCH rights? Empty Re: What will happen to PCH rights? Thu Mar 21, 2013 7:59 am

Fresher


Moderator
Moderator
@Gaja wrote:
npp wrote:@ Chinwi

After reading your previous view I assumed that the attempted rapid growth killed the company (maybe I didn't understand). As per the figure I uploaded, you can see that a particular quarter there has been a suddent increase in (credit) sales and a build up of inventory thereafter.

Now we see a reduction in turnover but improved Gross margins. I have not much idea regarding the plans of the company, but do you not think the company can at least survive if the debt problem (high finance cost) is resolved?

When more and enough quantities available in the open market, why should investors need to subscribe for the rights?

During the IPO stage there was an PC House representative responded for the questions, appreciated if they can give the view for the questions asked in the forum

I feel if the Owners are confidence enough about the future, then they will subscribe for all the rights despite the market price.

In the recent ownership change of ODEL & the subsequent rights issues, the new owners & sellers gave the assurance that they will subscribe for their entitlement, here no such assurances are not coming, i feel if that assurance comes then it MIGHT give some confidence


This is not exactly about the issue and the attractiveness. I bet even if the same issue was announced when it was trading at 6, the same thing would have happened. But I want to know how the new equity can change the situation as a company, given the management uses it properly. This is what I have questioned in the other thread. (I'll dig up later)

My point is that with the lower gross profits (although improved margin) the finance cost has become unmanageable. If there is no debt, at present condition it will amount to an EPS of over 0.25, for this need more equity which will of course dilute this but at least make the company survive if the business as chinwi said can be continued properly.

About the rights - it is not about whether we as retailers or long term investors will subscribe. But I'm sure the majority owners will try to make the business survive since if it collapses, it is they who will lose the most

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