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CitySpring Infrastructure Trust: Rights issue.

Thursday, June 30, 2011

I divested my investment in CitySpring Infrastructure Trust last year in October. At that time, the Trust was trading at 60.5c/unit. Long regarded the investment as a mistake, the divestment was premised upon the Trust's weak fundamentals and relatively low distribution yield.

The Trust's last done price was 53.5c/unit today and its managers announced a rights issue to raise about $210.2 million in gross proceeds to strengthen its balance sheet. Each unitholder will be asked to buy 11 new CitySpring units for every 20 held at 39c per rights unit. This rights issue is, more or less, expected with a very weak balance sheet.

I have mentioned before that rights issue to fund yield accretive purchases is good for unitholders. However, a rights issue to "strengthen balance sheet" which, basically, acknowledges a weak balance sheet in the first instance is not a good deal. They are asking for money to pay down debts. So, this rights issue lowers both the DPU and distribution yield straightaway.

A unitholder with an investment of 20 lots in the Trust would end up with 31 lots if he subscribes to his entitlement. He would still get the same total quarterly income distribution in dollar terms with 31 lots as he did with 20 lots. A lower DPU and distribution yield. Definitely not a good deal.

Good luck to existing unitholders.

Related post:
CitySpring Infrastructure Trust: Thoughts on divestment.

Read announcement here.



mark said...

Classic example of 'paying them back the dividends they issued previously'.

AK71 said...

Hi Mark,

Absolutely. I do not have a good opinion of this Trust.

Paul said...

I gonna frame the announcement to remind myself that a correct analysis without action is useless.

Now I'm caught between a rock and hard place. Think I bite the bullet and divest now. If I wait for CR, I think it will drop further.

AK71 said...

Hi Paul,

You have put it most succinctly. I have been in the same situation before, unfortunately. Good luck.

Anonymous said...

No hesitation. I divested first thing the market opened this morning. Terrible management, period.

AK71 said...

Hi Anonymous,

Not every entity backed by Temasek is blue blooded. Some could turn out to be blue black.

Could you include your name or initials in future comments? Thank you. :)

OT83 said...

lucky I divested last year at 0.61.

heng ah! :)

AK71 said...

Hi OT83,

I am glad to see you happy. :)

Out of curiosity, what made you divest at 61c last year?

OT83 said...

hi Ak,

that time i was doing gut instinct analysis. i think price too high, so I unload.

AK71 said...

Hi OT83,

Thanks for sharing. I learn something new everyday. ;-)

bummy said...

i divested this from my srs account in march this year and took a 31% loss as a result.

i knew i had to do what i did but i neve action till 54c, i glad i did it.

AK71 said...

Hi bummy,

You bit the bullet. :)

Bardrick said...


May I know why i didn't manage to recieve the notification that I am able to purchase the 11 to 20 share option? When is this given out? I am suprised that this share has dropped to 40c today:(

Didn't monitoring this share for more than half year.

Kindly advise..Thx

AK71 said...

Hi Bardrick,

I think the best person to check on this for you would be your stock broker. You might wanna call tomorrow in the morning. ;)

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