How to find out share price after Right Issue

dsam · 1 How to find out share price after Right Issue Mon Jul 04, 2011 3:41 pm

dsam

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Dear Sir/Madam
Pls. someone can explain to me.

Slstock · 2 Re: How to find out share price after Right Issue Mon Jul 04, 2011 3:47 pm

Slstock

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dsam wrote:Dear Sir/Madam
Pls. someone can explain to me.

Simple example:

XYZ company issues 3 rights at Rs 60 for each 5 shares held

XYZ company trading at Rs 100 before XR date

After XR date share price will be adjusted to = 100x5+ 60x3 / 8 = Rs 85

dsam · 3 Re: How to find out share price after Right Issue Mon Jul 04, 2011 3:51 pm

dsam

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Understood ,thank you Sir.

CHASE · 4 Re: How to find out share price after Right Issue Mon Jul 04, 2011 5:57 pm

CHASE

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I'm doing the calculation in different way. Please correct me if I'm wrong.

I think value the right like above is the main mistake investors did with LDIV
lets say the above company total issued shares are 5000
present company value 5000x100= 500000
Share value after right issue = 500000/(5000+3000)= 62.50
for me if the right issue is below 62.50 (Rs.60.00 ) Right issue is worth.
lets say they are Issuing the right at 80.00
then we should value purpose of the Issue.
for working capital/ Acquire another company etc...

Lets get the actual example
CDB - 1 share for every 6 held at 70.00
current values of the share 82
mkt value of the share( 82*6/7) + (Value of the Issue Purpose)

Slstock · 5 Re: How to find out share price after Right Issue Tue Jul 05, 2011 2:52 am

Slstock

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CHASE wrote:I'm doing the calculation in different way. Please correct me if I'm wrong.

I think value the right like above is the main mistake investors did with LDIV
lets say the above company total issued shares are 5000
present company value 5000x100= 500000
Share value after right issue = 500000/(5000+3000)= 62.50
for me if the right issue is below 62.50 (Rs.60.00 ) Right issue is worth.
lets say they are Issuing the right at 80.00
then we should value purpose of the Issue.
for working capital/ Acquire another company etc...

Lets get the actual example
CDB - 1 share for every 6 held at 70.00
current values of the share 82
mkt value of the share( 82*6/7) + (Value of the Issue Purpose)

In example 1, I did not see where Right issue price is involved in the calculation.

In CDB case what is the value you expect for CDB after XR according to the below.

mkt value of the share( 82*6/7) + (Value of the Issue Purpose)

If (Value of the Issue Purpose) = Rs 70 then

above euation will make it Rs 140.28 ?

DK · 6 Re: How to find out share price after Right Issue Tue Jul 05, 2011 5:27 am

DK

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Hi slstock

Price XR = ((Price Pre-XR*Number of shares Pre-XR)+(Rights Issue Price * Number of Shares issued via Rights)) / Total Number of shares.

In CDB:

Price XR = (82*6 + 70)/7 = 80.28

Edit: Sorry, just realised that slstock has been commenting on CHASE's eqn. Anyway slstock's equation is right, but note that the denominator applies to both terms.

dragz · 7 Re: How to find out share price after Right Issue Tue Jul 05, 2011 7:05 am

dragz

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Well this is useful, Im getting my first right issue for CSD. I know this is not the right place to ask a new question but what if I sell my right issue? Will I be able to gain some profit?

CHASE · 8 Re: How to find out share price after Right Issue Tue Jul 05, 2011 9:38 am

CHASE

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slstock wrote:

CHASE wrote:I'm doing the calculation in different way. Please correct me if I'm wrong.

I think value the right like above is the main mistake investors did with LDIV
lets say the above company total issued shares are 5000
present company value 5000x100= 500000
Share value after right issue = 500000/(5000+3000)= 62.50
for me if the right issue is below 62.50 (Rs.60.00 ) Right issue is worth.
lets say they are Issuing the right at 80.00
then we should value purpose of the Issue.
for working capital/ Acquire another company etc...

Lets get the actual example
CDB - 1 share for every 6 held at 70.00
current values of the share 82
mkt value of the share( 82*6/7) + (Value of the Issue Purpose)

In example 1, I did not see where Right issue price is involved in the calculation.

In CDB case what is the value you expect for CDB after XR according to the below.

mkt value of the share( 82*6/7) + (Value of the Issue Purpose)

If (Value of the Issue Purpose) = Rs 70 then

above euation will make it Rs 140.28 ?

Value of the issue purpose means not the 70
they are issuing the rights, to utilized in their current working capital. that means it'll definitely support to increase the company growth but
*. In my calculation first we have to decide whether right issue is worth or not.
for that my formula is
(Present Value of the share* present share) /(present share+ right issue) + (Value of the Issue Purpose)
here most difficult part to find the Value of the Issue Purpose. (Value of the Issue Purpose means if the share issue is for current working capital then expected additional growth / if the issue is to acquire another Company then value of that company.
Will go back to CDB right issue again
Since Value of the issue purpose is most difficult to find, Will keep that in a side for now.
then 82*6/7= 70.29
for me this right issue is worth coz its issuing at 70 & my present value of the share is 70.29+ value addition from the right issue (Value of the Issue Purpose)
in this case no need to worry about the Value of the Issue Purpose
Example 2.
Lets check the LDEV right issue.
according to your calculating share is worth ( Assuming share is worth Rs80.00 before right issue)
Right issue is 1 to 15 at 25
(80+(25*15)/16= 28.44
According to my formula
80/16+ (Value of the Issue purpose)
In this case I have to value the issue purpose coz otherwise it'll come 5 & it's very low than the right price.
Purpose is to acquire 61.88% of the Agarapatana Plantation.
Since I don't have the Agarapatana Plantation financials difficult to get the price. But I'll give you the points
01. Fair Value of the LDEV share before right issue (If I remember Share price has increase drastically
after right issue announcement )
+
02. Fair value of the Agarapatana Plantation

Will Assume LDEV share is worth 80 before the right issue then
Agarapatana Plantation share should be worth more than 40.40 to be worth the right issue.
(15 rights issuing at 25 to acquire 61.88% of the Agarapatana Plantation)
that means 15 rights = 9.282 of Agarapatana Plantation ( 15*61.88%)
Then Agarapatana Plantation share value should be equal or more that Rs. 40.40 to LDEV right to be worth (15*25/9.282=40.40)

enthush · 9 Re: How to find out share price after Right Issue Tue Jul 30, 2013 9:16 am

enthush

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slstock wrote:

dsam wrote:Dear Sir/Madam
Pls. someone can explain to me.

Simple example:

XYZ company issues 3 rights at Rs 60 for each 5 shares held

XYZ company trading at Rs 100 before XR date

After XR date share price will be adjusted to = 100x5+ 60x3 / 8 = Rs 85

How do u get the before XR date price? is it the day before the initial announcement of the rights issue?