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POOR TRANSACTION ADVISE-THE CASE OF KCB RIGHTS

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VituVingiSana		#21 Posted : Wednesday, June 30, 2010 4:17:43 PM
Rank: Chief Joined: 1/3/2007 Posts: 18,350 Location: Nairobi		Sasha wrote: @VVS & Wa_ithaka: Historically, bond issues are always more expensive that rights issues. Whether to raise capital via a rights issue or a bond issue will vary depending on which shoe you wear. For a shareholder, a bond issue is better for obvious reasons. For the management, a rights issue is the cheaper and hustle-free option. Remember that KCB are raising capital to strengthen their capital base and rein in those crazy operational costs. They have the highest cost to income ratio at 71%. If I was management, I wouldn't want to raise this capital by issuing a debt instrument that imposes obligations to make coupon payment after every so many months. Like muganda says, the antecedant costs of issuing a bond are quite high compared to those of a rights issue. The initial costs on average hit about 2.5% of the amount being raised, ergo, it would cost KCB about Kshs 375 million just to have a bond issue. Add the annual costs payable to the NSE, the registrars and fiscal agents. Management does NOT own KCB... the shareholders do... So it shud always be looked at from a SHAREHOLDER point of view... In today's market the BOND is cheaper unless the Mgmt does not want to pay a dividend... So if KCB pays 1/- (what did they pay for 2009?) as 'dividend cost' (on 17/-) that is almost 5.5% POST INCOME TAX... A bond's interest payments to lenders is Tax-DEDUCTIBLE... So if the 'interest cost' if 5% the effective post tax cost is closer to 3.5%... Greedy when others are fearful. Very fearful when others are greedy - *to paraphrase Warren Buffett*
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Wa_ithaka		#22 Posted : Wednesday, June 30, 2010 4:48:58 PM
Rank: Veteran Joined: 1/7/2010 Posts: 1,279 Location: nbi		I think the bond vs rights issue discussion is best left to CFA-ists and other quacks, though it is interesting that BBK chose to do a bond issue not an RI ac ouple of yrs back when t-bills were a little bit higher (I suspect it was the parent bank that suggested bond). For most of us investors, you are looking at the dilution effect and possibility that you'll get your returns... The Governor of Nyeri - 2017
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stocksmaster		#23 Posted : Friday, July 09, 2010 11:43:07 AM
Rank: Member Joined: 9/26/2006 Posts: 463 Location: CENTRAL PROVINCE		The KCB share price in the market has breached the Ksh 18 barrier heading south towards the rights offer price of Ksh 17. The rights option being sold in the NSE have breached the Ksh 0.50 heading south. The current rights option price of Ksh 0.40 means that the market currently values the KCB share at Ksh 17.40 With two weeks to go before the offer closes, it is worrying that the prediction of the share falling below the offer price of Ksh 17 may very well materialise before the 23rd of July. The big question would then be why should a shareholder pay Ksh 17 per share via the rights when the same can be bought cheaper in the market? This could result in many people refusing to take up their rights while those wishing to perform a cost averaging would simply opt to get the same from the market. Happy hunting. x handle: @stocksmaster79
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VituVingiSana		#24 Posted : Friday, July 09, 2010 11:59:00 AM
Rank: Chief Joined: 1/3/2007 Posts: 18,350 Location: Nairobi		I sold my KCB... now I await to 'replace' them with exercise my alloted Rights @ 17 or buy Rights at 0.10... Greedy when others are fearful. Very fearful when others are greedy - *to paraphrase Warren Buffett*
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muganda		#25 Posted : Friday, July 09, 2010 12:03:31 PM
Rank: Elder Joined: 9/15/2006 Posts: 3,907		@stocksmaster, Top of the morning greetings to you. I'd venture that a rights price of 0.40, as per your post, would actually mean price of 17.16 (and 17.75+0.16 for the last trade showing now) Realise we only received 2:5 (or 40%) rights. I should be getting rid of mine today - roho safi.
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Sasha		#26 Posted : Friday, July 09, 2010 12:23:24 PM
Rank: Veteran Joined: 9/5/2007 Posts: 627		ditto VVS. Have a bet with a 'TA' that the share price will go below 17 bob. A bet I don't want to lose!
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VituVingiSana		#27 Posted : Friday, July 09, 2010 12:27:24 PM
Rank: Chief Joined: 1/3/2007 Posts: 18,350 Location: Nairobi		@muganda (BTW, meaning to ask lakini are you Ugandan) @Stocksmaster is CORRECT... Someone who pays 40cts per Right is buying at 17.40 just as someone who pays 10cts ends up with 17.10 as the 'cost'. I have ignored the commission for the moment coz it doesn't add much to the overall cost... Greedy when others are fearful. Very fearful when others are greedy - *to paraphrase Warren Buffett*
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sparkly		#28 Posted : Friday, July 09, 2010 12:39:24 PM
Rank: Elder Joined: 9/23/2009 Posts: 8,083 Location: Enk are Nyirobi		someone please clarify to me. If i buy 1 right am i entitled to buy 1 share come the exercise date? In other words how many rights do i need to buy one share at 17/=? Life is short. Live passionately.
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VituVingiSana		#29 Posted : Friday, July 09, 2010 12:46:35 PM
Rank: Chief Joined: 1/3/2007 Posts: 18,350 Location: Nairobi		Sasha wrote: ditto VVS. Have a bet with a 'TA' that the share price will go below 17 bob. A bet I don't want to lose! Careful on this on coz if subscription is low then price cud drop below 17/- @sparkly - You need 1 Right to 'buy' 1 KCB share... Greedy when others are fearful. Very fearful when others are greedy - *to paraphrase Warren Buffett*
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muganda		#30 Posted : Friday, July 09, 2010 12:55:09 PM
Rank: Elder Joined: 9/15/2006 Posts: 3,907		VituVingiSana wrote: @muganda (BTW, meaning to ask lakini are you Ugandan) @Stocksmaster is CORRECT... Someone who pays 40cts per Right is buying at 17.40 just as someone who pays 10cts ends up with 17.10 as the 'cost'. I have ignored the commission for the moment coz it doesn't add much to the overall cost... Haha @VVS, I warrant if you met me you'd be quite disappointed - the measure of a man... Now you've not spoken as a shareholder: -sold my shares ~100,000 at 18.50 -presumed if I sell rights at 0.40, I'd get a total price of 18.90 -alas, total amount received totals to 18.50 plus 0.16 only, coz I'd only have ~40,000 rights By the way, is it true that this Rights issue has no roadshows, or other appropriate fanfare?
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