In some restaurants, live fish or crabs are displayed. Customers can pick the ones they like. The staff will weigh the live seafood in front of you, quote you a price, before sending it to the kitchen. Everything seems reasonable and fair. But have you ever wonder what happens in the kitchen? I heard that some unscrupulous restaurants would replace your chosen one with a frozen one. Of course, the frozen one is far cheaper than the live one. In other words, you are charged at the 'live' price, but actually what you get is the 'frozen' one.
Now come back to the investment world. Recently there are quite a number of companies issuing rights to raise cash. While each of them has their own reasons and merits, what puzzles me is the way that they promote the rights. They all claim to provide the shareholders 'an opportunity to subscribe for new shares at a discount'. Now the question is, is the per share value the same before and after the right issue? The share value will be diluted with the right issue! While you get the new share at a lower price, the value of your existing shares will be eroded.
The values are no longer the same, so how can you claim that there is a discount of the right share price as benchmark to current price? Isn't this an outright misrepresentation?
It somehow reminds me of the restaurants' trick, what you see is not what you get. Unfortunately in this case, the authority does not seem to be concerned of this misrepresentation.
** Quote from Genting Singapore's press release **
The Rights Issue will provide Genting shareholders with an opportunity to subscribe for new shares at a discount of 32.8 per cent to the closing price of S$1.19 yesterday.
Full press release here http://info.sgx.com/webcoranncatth.nsf/VwAttachments/Att_EA9853457589A4744825762D00138631/$file/GSPLC_PressRelease.pdf?openelement
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