[quote=stocksmaster]I hold the view that the KCB Rights transaction advisors are giving KCB a raw deal because of the following:

Price: The Ksh 17 per right is on the higher side considering the dilutional effect the 2:5 rights will have on the overall shareholding.

The Mathematics of the rights issue:
Each share last year made Ksh 2.05 for 2.217M shares.

After the rights, each share will have an EPS of Ksh 1.46. As such, each new share is being sold at a P/E of about 11.5

The rights in my opinion should have been sold at a P/E of 10, thus an offer price of Ksh 14.50.

The initial plan seemed to have been to issue 1.1B shares to be offered at 1:2 ratio at a price of about Ksh 14. When the regulator reduced the shares to be offered to 887M, the advisors seem to have simply retained the target of Ksh 15B and raised the offer price to Ksh 17.In my opinion, the target amount should have been reduced to about 13B.

Assume a person with 5 KCB shares before the shares went ex-rights. At a market price of Ksh 20.5 X 5 = Ksh 102.50
Add 2 right shares @ Ksh 17 = Ksh 34
Total value of his 7 shares is Ksh 136.50
Thus Per share, a cost of Ksh 19.50;and a current P/E of 13.35, forward P/E (10% growth for 2010) of 12.2.
I expect the share post rights to trade at the Ksh 17.5 to Ksh 18.5 range before gradually moving to the Ksh 20 range as excess liquidity is mopped up.

The GoK
With the GoK not taking up its right, it means the other shareholders have to step forward an bring Ksh 3.45B that the GoK was supposed to pay for its 23% shareholding. This effectively devalues the right options of other shareholders (tradeable in the NSE). Why buy the other shareholders rights priviledges for maybe Ksh 1.50 (Ex rights price of Ksh 18.5 - Rights price of Ksh 17) when the GoK's 200M rights have no takers.
The outcome is that, during the rights, the KCB share is effectively worth Ksh 17 since the rights priviledges approach a value of Ksh 0 (a case of excessive supply of rights). Worst case scenario would be the share price falling to below Ksh 17 , a real possibility because of the poor timing as highlighted below.

Timing
How do you plan the largest rights issue in Kenyas history to run a few days before an election (Referendum)? This poor timing may just push the share to below the rights issue price, seriously jeopardising the success of the rights issue. In my opinion, the rights should have been offered at the end of August to milk the euphoric mood (especially if the Yes prevails)

Stockmaster.. I need an old head to advice or rather to mentor me on shares. Natoka huku mashambani wiki ya Jamhuri day.. Any chance ya acquintance or else could you do it via email.. gatoho@ymail.com?

After the conclusion of the KCB Rights, the dynamics changed:
1. Only 85% of the 887M rights were taken up thus a reduction in the dilutional effect on the EPS.
2. The institional demand for the shares picked up post rights.
3. The whole market was getting expensive and on a comparative basis, KCB became cheaper than the other banking stocks.

The resultant scenario thus made business sense to buy KCB. The share appreciated to the Ksh 22.75-23 range within a short time which begged for capital gains to be locked in.

It wasnt a change of mind but a change of the investment environment.

Happy hunting.