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Reader:
Just checking can you comment on SINO GRANDNESS rights issue?
Is it worth subscribing to the rights?
Thanks
AK:
Always ask what is the reason for issuing rights. It seems like they have trouble repaying debt and, hence, the rights issue. If so, the rights issue does not add value for investors.
Subscribe if you believe that the company is able to do much better in future.
Reader:
ok thanks for the advise.
AK:
If you are putting in more money but the performance declines, it is a bad deal.
Reader:
yeah
Remember, not all rights issues are created equal. Some will enrich investors and some will impoverish them.
In general, I do not like rights issues which happen because the balance sheet needs strengthening. They weaken our own balance sheet and do nothing to improve our cash flow.
Related post:
A lesson on rights issue from 2011.
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