Why do i have this feeling that KQ is getting their 14 bob anyway?

Citi have underwritten the issue, and its them who will buy an 8 bob share at 14.

Essentially, KQ shorted their own stock.

Suppose that 25% of shares are not taken up, then Citi will have to buy them at 14. This means Citi will put 14*125m = 5.6b

Citi will then either hold them or sell them, whichever way, if the price settles to 8bob, Citi has to impair 2.4b. That’s their profits for 4 years.

I hope this does not spill over to banking

didnt know george soros was a player !


http://articles.nydailyn...oros-lawyer-claims-bribe

KQ’s risk management team looks smarter than the Citibank’s in the immediate time. As time ticks, citi could be the ones smiling. But then again, there was word that 80% of the shareholders have promised to pick their rights. One can even tell that the volumes changing hands at this period are wanjikus

"...according to Clark, who says he’s sticking with a no-hedging strategy rather than risking a losing bet.

“You think you’re going to win, but in the long term you always lose,” Clark said yesterday at the Gulf carrier’s head office near Dubai International Airport. “When we enter into derivatives, betting whatever it may be with counterparties who actually control the price of fuel in the first place, you have to ask yourself, ‘Is that smart?’”

http://www.bloomberg.com...il-in-fuel-squeeze.html

Well, compare KQ vs Emirates!

KQ has made net losses since they started hedging. These hedges are sold by financial institutions that in turn buy/sell the same hedges... It's the fox guarding the hen-house.

Citi will get a good deal. KQ's NAV is much higher than 14/-. Even after the Rights, the NAV will be above 14/- [and a lot of it in cash].

Furthermore, Citibank will INSIST in being the main bank for KQ's Rights Issue thus earning fees, commissions & arbitrage income.

Citi will also get a DISCOUNT on the Rights Issue. Yes, suckers, Citi will pay less than 14/-.

With the price falling much below the rights price, the possibility of citi bank having to underwrite upto 20% of the rights (about the fraction of local KQ shareholders) becomes a real possibility. By underwritting about 20% of rights (about 290M shares), Citi bank may end up owning 15% of KQ post rights!!!

I still believe the KQ expansion is over ambitious especially considering the many variables currently affecting the airline business. The Ksh 20.7B to be raised by the rights issue is only a 10% down payment for the planes!!! My concern is the level of debt they will have to take to pay the balance.

It would be prudent to stay out of this share for the short to medium term.

Happy Hunting

There are local sales & foreign sales. A lot of KQ shares are owned by 'foreigners' so the forex would remain with Citi.

Underwriters get a fee or discount to underwrite a Rights Issue. This fee/discount means Citi effectively pays LESS than 14/-.

So citibank had signed a price edge gambling or what?why havent they pulled out?

there's nothing like price edge gambling