Singapura Finance: Electronic application through ATMs.

I have participated in quite a few rights issues before and the way I do it has always been to visit a POSB or DBS ATM. However, we must not take for granted that this is always possible.

I went through the online document on Singapura Finance's rights issue and found that they will only accept electronic applications through the ATMs belonging to UOB or OCBC.

This is terribly inconvenient for me since the only bank I still keep an ATM card for is POSB. This card can be used at ATMs belonging to DBS too, of course. Combined, they have the biggest network of ATMs in Singapore. There is no reason for me to hold ATM cards belonging to UOB or OCBC. Well, not until now.

I will have to pay a visit to UOB to apply for an ATM card which would probably see only a one time usage. What a bother.

So, for anyone who is a Singapura Finance shareholder, in case you do not already know, please take note of this. Don't go to a DBS or POSB ATM on the last day for acceptance (27 November) only to be surprised.

Announcement:
RIGHTS ISSUE OF 79,342,945 NEW ORDINARY SHARES

Related post:
Singapura Finance: 1 for 1 rights issue.

Singapura Finance: 1 for 1 rights issue.

I have been a Singapura Finance shareholder for a few years. If you have not heard of Singapura Finance, well, it is not surprising as it is one of those sleepy stocks that don't really shout out for attention.

Why did I become a shareholder a few years ago?

1. They have a good track record of rewarding shareholders with meaningful dividends.

2. The stock was trading at a big discount to NAV. (It still is.)

Nothing exciting, really. Just the usual stuff I look out for.

In the last few years, however, earnings came under pressure. EPS declined and dividend per share (DPS) also declined.

The reason really is due to the low interest rates environment and the Chairman said:

"The Singapore Dollar interest rate, which closely tracked the US Dollar interest rate, remained at an exceptional low level throughout the year. As a result of the continual low interest environment coupled with the relentless market competition, interest margin was subjected to immense pressure and deteriorated further during the year. Against such challenging external backdrop, and the need to provide additional collective impairment for the loan allowance, the Group profit after tax for the current year declined 21.2% to $5.3 million." (Taken from Annual Report 2013.)

How are things looking now? Results improved in 2014 and profit after tax rose 10.2%.

Now, with interest rates likely to rise next year, it seems that Singapura Finance might do much better again in future. To ready themselves, they are strengthening their capital base by having a 1 for 1 rights issue at an issue price of $1.00 per share. This rights issue is renounceable which means that shareholders could sell nil-paid rights in the open market if they do not mind having their shareholdings diluted.

I know that some readers might be thinking about possibly buying Singapura Finance's stock now to participate in the rights issue. If you are one of them, you might want to consider the following first:

With a theoretical ex-rights price (TERP) of $1.275 per share, nil-paid rights selling at any price lower than 27.5c (when they start trading) would be "cheap". At a NAV/share of $2.10, a share price of $1.55 is cheap (26% discount to NAV) but, post rights, NAV/share becomes $1.55 or so. So, the TERP of $1.275 is less cheap (17.75% discount to NAV, post rights issue). Of course, rights shares at $1.00 each represents the best value for money (35.5% discount to NAV, post rights issue).

Expect EPS and DPS to half as well, ex-rights. 3.5c and 2.5c, respectively, perhaps? Of course, this is assuming that everything else remains equal and that there is no improvement in business performance in future which seems unlikely to me.

For existing shareholders to subscribe for the rights allotted to them is, ultimately, to show confidence in the management that they will be able to improve earnings by more than 100% in due course. It has to be more because even if earnings should improve by 100%, it would mean that business performance has not improved one bit on a per share basis. Then, it would be better not to have had the rights issue.

I will subscribe for my rights as I am confident that interest margin will improve in future although the business environment is likely to stay competitive. I will apply for excess rights too but I will give the nil-paid rights a miss.

Taking part in the rights issue is to believe that the additional funds will generate a much higher EPS in the medium term. In the short term, business performance could continue to be lacklustre and whether this would put downward pressure on the share price or not is hard to say.

See announcement on rights issue: here.
Visit Singapura Finance's website: here.