This stock caught my attention today as the top volume along with SGB-PA and SGB-WA.![]()
Spring
Gallery Berhad (SGB) has had a rights issue recently. Today was the
listing of SGB-PA and SGB-WA. SGB shareholders’ were entitled to
subscribe 5 SGB-PA at RM 0.06 each for 1 SGB share held; however as a
“sweetener”, a shareholder who subscribes 10 SGB-PA will receive a free
warrant, SGB-WA.FACT
Based on announcement dated 21 March 2016:
- SGB-PA exercise price is RM 0.54 or 10 SGB-PA equals 1 SGB share automatically upon expiry.
- SGB-WA exercise price is RM 0.60.
- SGB-PA and SGB-WA expires in 5 years time.
Note: Please do not confuse with the
announcement dated 5 February 2016; that is just a circular to propose
the entitlement which has to be voted in an EGM. The details in this
circular which is different with the final details above are written in
orange. Initially, it was proposed that the only way of converting
SGB-PA to mother share is via the 10:1 exchange ratio.
ANALYSIS
SGB-PA must be worth more than SGB-WA
Given that SGB-PA holders can be exercised at a lower price than SGB-WA, SGB-PA must be more valuable.
Also, upon expiry, SGB-WA is worthless
unless exercised. Meanwhile, SGB-PA will automatically be converted to
SGB shares on a 10 SGB-PA: 1 SGB ratio.
No valuation of SGB
As a caveat, I should let my readers know
that I’m not free to write an article on the fundamentals of SGB. If
there is some arbitrage opportunity and should the SGB mother share
fall, all holders of SGB-WA and SGB-PA will suffer.
VALUATION
SGB-PA should be worth at least equivalent to SGB-WA of RM 0.225, which implies a 114.2% upside.
If SGB-PA does not catch up with SGB-WA, then it means that SGB-WA should fall below RM 0.105, a -53.3% downside.
Thank you.
Shaun Loong
Disclosure: At time of publication, I own stocks in PUNCAK.
