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LMIR: Why did the rights plunge in price and what did I do?

Tuesday, November 15, 2011

To say that I was not surprised by the plunge in price of LMIR's rights is definitely untrue. I did expect further weakness but the steep plunge downwards was unnerving, made worse by the spike in trading volume. Going by the number of comments in my blog, many others were similarly affected.



So, do we press the panic button and start frothing at the mouth? Nah, we should get really greedy. Hey, there is a fire sale going on.

Some asked me if I had any idea why the price was plunging. It is quite simple, really. Price of the rights plunged because:

1. There are people who cannot exercise their rights.

2. There are people who do not want to exercise their rights.

3. The number of rights which sellers have is greater than the number of rights which buyers are ready to absorb.

Now, should we ask why some cannot or do not want to exercise their rights? Do we ask why there are more sellers than buyers? Well, we could but I wouldn't bother. As an investor, I did my due diligence and decided that I like the REIT's numbers even more at the current price. So, accordingly, I buy more.

Needless to say, my overnight buy orders at 3.8c and 3.4c were filled. At lunch time today, I looked at the chart and Fibo lines suggested a strong support at 2.1c (150% Fibo line) and I entered a buy order which was subsequently filled. Could we see further weakness? Of course, we could and if we should, I see stronger support at 1.6c (161.8% Fibo line) and I have entered a buy order at that price.

1.6c is also somewhat magical because at an estimated annualised DPU of 3.26c, post rights and acquisitions, buying the rights at 1.6c would translate to a total cost of 32.6c per unit which means a 10% distribution yield.

33 comments:

SnOOpy168 said...

If I may ask a complicated question here & just for this newbie.

As I had already subscribed my rights and put in some excess rights order, can I still buy some nil=paid rights within the next 3 days, then head back to the atm to subscribe to these new rights ?

Or I should have waited until next week when the dust settles and ATM everything ?

Thanks

AK71 said...

Hi SnOOpy168,

Personally, I always wait until the rights stop trading before heading to the ATMs as I might end up buying some nil-paid rights.

Frankly, I do not know if you can visit the ATMs twice, the second time to pay for nil-paid rights you might be buying.

Perhaps, some readers who have experience with this could comment.

Ao said...

I should have been rational and use fibo lines to plan when to buy at which point :(

I was too desperate to get in. I got in at 2.4cents which is still pretty decent. This reminds me of first reit case last year which I did not participated. Because i was fearful of how come people were selling at such low prices. Upon seeing that this is repeating again, my immediate instinct was to buy. hehe. I guess it is a conditioned/reflex respond :)

SnOOpy168 said...

Lesson learned, thanks.

I am not heading for nil-paid rights as i still don't really understand the process and calculations.

Huat ah.

Minpi Manis

Hwang said...

i am back being a shareholder after a two months break!

Would love to collect the nil-paid rights, but since i am using Stanchart as custodian, not too sure how the conversion works. so currently collecting mother shares at 8.5% yield.

i am not greedy :P

Anonymous said...

Hi AK,

I've been following your blog for some time with great interest n sincerely enjoy reading your posts.

Just a newbie question here regarding the LMIR frenzy. If the supply of rights exceeds demand, wouldn't this imply a higher chance of success for current unit holders to apply for excess rights, n at a better price than going into nil paid rights?

Thks:)

moi

Aloy said...

Hi,

Can I ask if I were to buy nil paid rights, how can I pay up at ATM to convert these nil paid rights to mother shares?
Do I pay up under the 'Acceptance of Rights' option or the 'Excess Rights' options?

Please advise.. Thanks..

Idono said...

I hope the following qn is not stupid from a newbie like me.

Why wouldn't one wait till after the rights exercise date and then buy up the main stock? The price will be very similar to the rights exercised price isnt it?

Calvin said...

AK,

Agreed, there is a huge fire sale going on. I have been buying up the rights at the open market and they getting cheaper and cheaper.

As I mentioned there is a time value component here, it is similar to options in the US market. Secondly, its all the other factors like lack of knowledge, lack of capital, no confidence etc.

Whatever the case, it's a great opportunity :)

Calvin
http://www.investinpassiveincome.com

AK71 said...

Hi Ao,

Yes, the parallel with First REIT's rights issue is too obvious to miss. :)

2.4c is a fantastic entry price. Congratulations!

AK71 said...

Hi SnOOpy168,

Sticking to what I know is what I do too and I sleep well at night because of it. This is priceless. :)

Sandy said...

Please call CDP to clarify. CDP can help answer SnOOpy168 question.

AK71 said...

Hi Hwang,

That would work too. Congratulations. :)

AK71 said...

Hi moi,

Well, people who have rights entitlements who do not sell their rights or convert them will contribute to the excess rights pool. If all these people sell their rights, there wouldn't be any excess rights left. ;)

I do not know how many excess rights will be available for distribution but, yes, getting excess rights is even cheaper than buying nil-paid rights. :)

AK71 said...

Hi Aloy,

Buying nil-paid rights means you already own these rights. You have to accept these rights at the ATMs.

Excess rights would be rights which are not owned by anyone and which are up for application by any interested person.

AK71 said...

Hi Idono,

I really don't know what the REIT's unit price will be like, ex-rights. It could be lower or higher.

What I know is that at current prices, I see compelling value. So, I buy. :)

AK71 said...

Hi Calvin,

Yes, if the rights get cheaper, I will buy more. :)

Ray said...

I don't think there will be distribution of excess rights. If I remember correctly the rights issue disclosure states lippo - the sponsor of lmir - will snap up all excess rights. Those who r waiting may want to check up sgx website first.

AK71 said...

Hi Ray,

Only if no one else wants the excess rights. The sponsor will rank last in priority in the allotment of excess rights units. ;)

Ray said...

For those who are familiar with rights issues from REITs, does the lower exercise price (in LMIR its 31cents) alwayd drive down the mother share price? If so, whenevr the management issue rights, share price suffers?

AK71 said...

Hi Ray,

I would look at it on a case by case basis. This was not the case with AIMS AMP Capital Industrial REIT. It depends on how the rights are priced, amongst other things. There is no hard and fast rule on this.

Ray said...

Hi AK,

Thanks for the prompt reply. Anyway I bought too exp. Mother share is cheaper than my rights+exercise price! :(
No more funds to average anymore :D

Good to have deep pockets like you.

AK71 said...

Hi Ray,

Average in slowly in future. Doesn't really matter how big or small our warchest is if we do it slowly.

Well, like I said, you are still getting a good yield. If you are investing for income, there is nothing to cry over. :)

Ray said...

Hi AK,

Yes. Hope idonesia gdp dun shrink on me now :D

Thanks for all the advice and posts thus far. Do you take in disciples? ;)

AK71 said...

Hi Ray,

We are mere mortals and can only do our best. We have imperfect knowledge and we have to live with risks. So, knowing this, let us learn together. No guru, no disciple. I share freely my thoughts here in my blog. :)

However, there are gurus who are more than willing to take your money and teach you the ways to make lots of money in the stock market. I am not in the same class as them, unfortunately. :(

Ray said...

Those gurus, half of them cannot really make it. Don't wanna spend tens of thousands on them. Have friends who did and told me waste money ;)

You don't be modest lah. Based on rough calculations, your stock portfolio already exceed one million SGD. And that's just dividend yielding stocks! I'm sure many here agree you are high up in that class you talked abt :) perhaps even better than some who charge for lessons. Keep up the good work.

AK71 said...

Hi Ray,

I am really not guru-class. I know I could have done better in many areas over the last few years.

However, thanks for the encouragement. I appreciate it. :)

Anonymous said...

AK, would really appreciate it if you could post a tutorial on buying rights issue on the SGX. Do you buy the rights and then later go to the ATM to buy the mother share at the stipulated price? Is that how it works? I only know... buy mother share then get rights which I either take up or let it pass.

Marco said...

I do not have access to ATM as I am staying in Malaysia.
How can I buy the nil pay right and exercise them?

AK71 said...

Hi Anonymous,

It is quite simple and a tutorial would be something of an overkill.

CDP would send out mailers to anyone who is an existing unitholder by now. For people who have bought nil-paid rights in the open market, CDP will be sending another mailer to them after the rights stop trading on 18 Nov. Instructions are given in the mailers. :)

Basically, existing unitholders are given rights and they can either choose to exercise these rights by paying 31c per right or sell these away as nil paid rights.

Anyone could buy nil paid rights in the open market. They will later have to pay 31c per right unit. These will rank the same as regular units in the REIT.

Payment can be made at the ATMs or with a Cashier's Order together with filling up the form CDP sends out.

AK71 said...

Hi Marco,

If your registered address with CDP is not in Singapore, I will advise you to call your broker to check if you are eligible to take part in the rights exercise.

You still have time as the rights stop trading tomorrow, 18 Nov. :)

Ray said...

Yay! both mothershares and rights prices are climbing back up!

^_^

Hope you guys have made a killing.

AK71 said...

Hi Ray,

Those who bought in the fire sale are in the money. :)

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