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LMIR: Sinking rights.

Monday, November 14, 2011

LMIR's rights sank today. It gapped down, touching an intraday low of 4.4c before closing at 4.6c. Is it going to sink further tomorrow?



Thus far, I have only discussed LMIR's rights issue from the perspective of its fundamentals. What about a TA? For seasoned and orthodox practitioners of technical analysis, they will say that it is impossible to do a TA on this counter with only three sessions so far.

As I am neither seasoned nor orthodox, I have in the past done TA on such counters. One that comes to mind is Sabana REIT during its IPO days. So, for anyone who might be interested, here is my TA on LMIR's rights.


Trading volume has been on the rise as three black candles were formed. This bearish tone is reinforced by the gap down in price today. Although price averted closing at the day's low, it did not close high enough to form a hammer. A hammer would see the lower wick at least twice as long as the body of the black candle. In this case, the body is twice as long as the wick. Further weakness in price would not surprise me.


However, Mr. Market is known to be perverse. Although an immediate reversal would be surprising, it is definitely not impossible. So, what would I do?

In such situations, we can only use Fibo lines to see where the possible supports and resistance levels are. Regular readers would also remember that I like to use two or more sets of Fibo lines to identify very strong supports and resistance. I have done that in this case.

I see strong support in the region of 3.3c to 3.4c where two Fibo lines approximate. That is where I have put in a buy order. However, it does not mean that the support would necessarily be hit. I also see a 138.2% Fibo line at 3.8c. I have also put in a buy order there. Again, it does not mean that the support would be tested. Fibo lines simply show approximate positions of important resistance or supports with no promise that these would ever be tested.

I bought into the rights at 5.6c last Friday and I bought more today at 4.6c. I have accumulated a significant position and unless price should hit those supports I have identified, there is little incentive for me to continue adding. For anyone who has yet to initiate a long position, I would say that the rights are at the right price for me as an investor (pardon the pun) as I see greater value now.

Related post:
LMIR: Bought some nil-paid rights.

36 comments:

Anonymous said...

When is the last day of right trading?

Ray said...

Hi AK,

It is also noteworthy that the mother shares of LMIR is also under selling pressure dropping from 0.4x to the 0.385 now.

Does it concern you if the mother shares drop below the rights cost + exercise price of 0.31?

Calvin said...

Hi AK,

I have been buying up the rights for LMIR as well. As the expiry date approaches, the rights will definitely fall in value due to declining time value. It's a great discount at this point of time considering dividend yields will be in excess of 9%. I also wrote about this on my website.

http://www.investinpassiveincome.com/lippomall-rights-going-at-big-discount/

Wackqq said...

Hi AK71,

With the rights posting new lows on the daily basis, would u have strategy to stop any additonal purchase even if it means price at new low so as not to be overexposed in one counter?

Anonymous said...

I remembered it happened to first REIT too ... The rights was pushed down very low .


It's 2.8 cents now ..... A bigger buffer ?
37-2.8-31-1 = 2 cents buffer .....
Tomorrow will be interesting ..... After dividends

Chan .

AK71 said...

Hi Anonymous,

18 Nov, iirc.

AK71 said...

Hi Ray,

Prices reflect sentiments and not value. At lower prices, there is higher value, all else remaining equal. The case to increase exposure becomes more compelling.

If unit price of LMIR should fall to 31c or lower, you will see me buying more.

AK71 said...

Hi Calvin,

I don't know if the idea that the price of rights will definitely fall due to declining time value holds water. Personally, I just put it down to demand and supply. More sellers than buyers means that price might decline.

There could be many reasons for the massive selling of the rights but what is important to me is my reason to buy more as price weakens. Value is shining through at such low prices.

AK71 said...

Hi Wackqq,

I have every intention to continue accumulating at important supports.

My overnight buy orders at 3.8c and 3.4c were filled today. When I looked at the Fibo lines when I was able to take a break from work at 12nn, I saw the next supports at 2.1c and 1.6c. I entered buy orders accordingly. The buy order at 2.1c has been filled. :)

AK71 said...

Hi Chan,

Yes, I remember First REIT's rights issue. I accumulated the rights too as they were sold down. It has been most rewarding since. :)

Ray said...

Hi experts,

Nothing I researched abt LMIR suggest it is fundamentally wrong.
If that's the case, why is Mr Market in such a foul mood towards LMIR (mother share)?

Is the right issue news badly received by the investors? LMIR is falling much more than the other REITs.

AK71 said...

Hi Ray,

LMIR has a strong set of numbers and a strong sponsor. If Mr. Market goes into a manic depression and wants to sell cheaply, I will buy. Quite simple to me. :)

Temperament said...

Hi AK71,
It's good to know you think the fundamentals have not changed. i buy more today too.
Shalom!

Wong said...

Hi AK
Please correct me if i am wrong, had been reading all the comments and scare i misunderstand...

Let's say i get the nil paid right at last trading day (i do not have any mother share), i can just straight go to ATM to pay the 31c for the nil paid right i bought rite? There is no nid to wait for CDP's letter and then go ATM and pay?

AK71 said...

Hi Temperament,

Yes, all else remaining equal, there is no reason not to buy more LMIR rights if price should go lower.

If price should close below 2.1c support, we could see 1.6c next and I would buy more then.

AK71 said...

Hi Wong,

Yes, you can go to the ATM and pay for the nil paid rights you bought without waiting for the letter from CDP. :)

Ray said...

Sigh... too bad I only divided my available funds into only two tranches.
I averaged down to an average of 4cents.

Should have divided them into more tranches. Lessons learnt :(

Didn't expect it to lao sai until 2cents

AK71 said...

Hi Ray,

Well, looking on the bright side, the price after conversion for you will be 35c and that is a great price with an expected distribution yield of 9.3%.

Now, if you were to get some at 2c, the low of the day so far, total price would be 33c and the distribution yield would be 9.88%. The difference in yield is only 0.58%. Not a big deal, really. :)

Anonymous said...

AK,

Did you managed to arbitrate the difference between the mother share and rights ? Would have been very profitable if you did.

Skipper

Temperament said...

Hi AK71,
It's look like the price has "stabilised' around 2.0 cents. i think it won't go lower. Tomorrow, there shall be more buyers than sellers until 18 NOV. i am predicting for fun only. No one should be serious about what i said. Have fun. Anyway i have my quota filled.
Cheers!

Anonymous said...

Ak, got alot of ppl in cbox panick on how come at 9c rights become 2.6c.

What is ur advice?

Ray said...

Hi AK,

True. But I remember you posted LMIR not good for yield investment coz DPU may be dropping next year? I was hoping to just profit for arbitrage :D but looks like Mr Market isn't easily fooled. Anyway techically this isn't really arbitrage coz the mother shares fluctuate independently of the rights price. Its closer to options trading really. Rights and options may become in-the-money or to out-of-money. Mine is closer to the latter by the look of how the mother shares are plunging :(

AK71 said...

Hi Skipper,

It would have been just a difference of 3 to 4k. So, I didn't bother. Just keep the units I have for the income distribution of 1.06c which will go X tomorrow.

AK71 said...

Hi Temperament,

Personally, it is also my believe that we could be seeing more buyers for the rights while the mother share experiences more selling pressure as it goes XD tomorrow.

My broker called me earlier to tell me many of his clients are selling the mother share and buying the rights to take advantage of the arbitrage. So, this reinforces my believe.

Of course, it is most of the time foolhardy to guess what Mr. Market would do next. ;)

AK71 said...

Hi Anonymous,

Advice? None whatsoever.

I like the sound of how people are panicking. If they are panicking and selling, it could drive prices lower and I would accumulate on further weakness. ;)

AK71 said...

Hi Ray,

Hmmm.. I think you are mistaken. I would never say that LMIR is not a good investment for income. I have said before in a couple of blog posts that the rights issue is not yield accretive. There is a difference.

Given the very low gearing at less than 10% post rights and acquisitions, we could see more acquisitions in future without another rights issue in a long while. Every such acquisition in future would be distribution yield accretive assuming that they would be funded fully by debt, all else remaining equal.

Buying the rights at current prices gives us a distribution yield in excess of 9% in the meantime. It is a great investment for income. :)

Anonymous said...

Hi AK,

ok i am very new to this. but i have been following your blog. this is the first time i have came across a rights issue, so i have some questions. if i dont have any mother shares now (trading at $0.365 as of nov 15) and i want to own some of these shares, do i buy the rights (currently at $0.026) or the mother shares? which is more advisable? and how should i go about doing it?

Ray said...

Hi AK,

Guess I'm really mistaken then. :)
Lets talk Macro.
What do you think abt Indonesia's economy. Many feel the hot economy will cool soon.
That would be good for Mall REITs right?

Any thoughts?

AK71 said...

Hi Anonymous,

In your case, it would be more straightforward to buy units of LMIR at 35.5c.

However, with the rights still trading at 2.6c or so, plus a conversion price of 31c, the total cost is only 33.6c if you were to buy the rights instead.

It is more economical to buy the rights. If you do so, wait for the letter from CDP which will give you instructions on conversion of the rights to regular units. Good luck. :)

AK71 said...

Hi Ray,

In a recessionary environment, everything will slow down. However, remembering that Indonesia did not go into a recession in the last financial crisis tells us something about the strength of their economy.

Indonesia's hot economy might cool down but it will not become cold. It might just become warm instead of hot. ;)

Domestic consumption accounts for 60% of Indonesian GDP. I do not see this reducing. This can only be good news for LMIR. :)

Anonymous said...

Hi AK,

Thanks for your reply. So am i right to say, if i buy the rights (0.031c) as of today on open market, then i will still need to wait for a letter from CDP for instructions to convert rights to regular units, wont that letter take some time to reach me? and also, will the instructions on the letter be something like going to the ATM to pay 31c per lot to get my regular units?
last day of buying the rights is on the 18th nov right? by 24th nov i will need to go to atm and make payment of 31c per lot to get my regular units? did i get the dates right? I am sorry for all these questions as i am new to this. thanks!

AK71 said...

Hi Anonymous,

Yes, I think you have a clear picture of the rights exercise and you got the dates right except that it is not 31c per lot but $310 per lot. Just to be sure. ;)

The letter from CDP should get to buyers of nil paid rights within 2 or 3 working days after the rights stop trading, going by past experience.

You could got to the ATMs and make payment without waiting for the letter from CDP if you are confident enough, of course. :)

Roma said...

Weak corporate governance structures of Reits in general?

At present Reits will be used as a defensive investment vehicle in these choppy times.

But would do you think about the risk that the sponsors (maybe also in trouble a bit) are trying to offload unwanted property and even worse overpricing them?
Are they having too much power over the Reit which they sponsor?
Will it becoming a risk for us small investors?

Anonymous said...

Hi AK ,

I was entitled to the right issue from the parent shares (have received "ARE" form) and also bought the nil-paid right from the market (have received "ARS" form).
I would appreciate it if you could enlighten me on the following queries, based on your experiences and knowledge
1) If I accept and pay up the right issues via POSB ATM, would there be an option to select "ARE" or "ARS" and accept the number of rights in separate manner, or, we just enter the sum of the rights from both "ARE" and "ARS", no segregation.
2) Would right issue purchased from the market also allow us to apply for excess rights ?

AK71 said...

Hi Roma,

Any company which has a small float is in a position which could put small shareholders at a disadvantage. REITs are no exception.

However, if the sponsors of the REITs want to ensure that they are looked upon favourably and that there will continue to be positive interest in their REITs, they will do well not to shortchange unitholders.

As investors, we should choose to invest in companies and REITs which behave well too. :)

AK71 said...

Hi Anonymous,

Only existing unitholders have a chance at getting any excess rights, if I am not mistaken.

If you are an existing unitholder and have been alloted rights and you also bought nil-paid rights, at the ATM, just total these rights and pay for them together.

Thereafter, you will go to another screen for excess rights application.

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