Are you one of the investors who think that Irredeemable Convertible Preference Shares ("ICPS") or Redeemable Convertible Preference Shares ("RCPS") is bad for the minor shareholders? THINK AGAIN!
A common misconception of minority shareholders is always the same - Dilution of share ownership = Bad, Bad Bad!
However, in fact ICPS / RCPS is a ultra good method for listed companies to grow, or as a source to secure fundings.. But you might ask - why is that so?
Take a few good companies with good business model and good management; Airasia Group Berhad ("AIRASIA"), Bumi Aramada Berhad ("ARMADA") and Genting Plantation Berhad ("GENP"), what is the one key item that eats away their profit?
Was it bad margins? No..
Was it bad cost controls? No..
It's this particular item - FINANCE COSTS that eats up majority of their profit, or even drive them into a loss making company!
So as a investor myself, I always ask myself this question: "Eugene, do you want a loss making company, or a company that is able to raise fund consistently with no finance costs at all?"
To me, the answer is plain and simple. I hope it is to you as well.
But wait, for new investors out there, what the heck are ICPS and RCPS?
In ultra layman term, ICPS and RCPS is just another type of convertible warrant (unless otherwise the company's ICPS and RCPS is interest bearing itself), investors would have to pay a certain amount (conversion price, which in turn funds the company's business) to convert into mother share!
But why would they convert into mother share? One thing I'm sure is - investors are not idiots , there must be something behind for them to willingly convert the ICPS and RCPS into mother shares, and increase their shareholdings!
That is - the company's growth prospect. And I've personally identified 2 companies with ICPS / RCPS and with ultra good growth prospects, namely:
ARB Berhad (KLSE:7181) and Ageson Berhad (KLSE:7145)
If you are interested to learn more, just comment "Power Investing" below, and I will share with you more about ICPS / RCPS and the ultra growth prospects of these 2 companies!
Disclaimer: All information or research provided in the article are solely for educational purposes. No buy or sell call are included in this particular article and these companies has high liquidity that do not require readers to go and buy.