Wednesday, December 21, 2016

Sabana Reit 42 for 100 rights exercise

Sabana just announced a rights exercise. For every 100 shares that you have before XR, you're entitled to 42 rights shares priced at $0.258. Based on their track record, I don't think it'll be well received.

I once bought Sabana reit at 0.960 back in Nov 2010 and sold it at a 0.910. After dividends, thankfully I still make a very slight profit of 0.7%. I told my wife to get rid of it too. From then, the share price just went lower and lower until it hits 0.435 today. Imagine a 50% loss but with a yield of 8 to 9% pa! The dividend is not going to be enough to cover the loss in capital.

There's quite a few people asking around on what to do with their Sabana reits. I think we can safely classify into 2 types:

A. Those who had shares in this
B. Those who don't have any shares but wanting to get into it.

I can tell you frankly, rights issue is going to benefit people in group B more than group A most of the time.

Don't slip on this slippery banana skin

For people in group A:

1. You can decide on a fundamental basis whether you want to sink in more money into this or not. If you don't want to, you should sell it as soon as possible and close off the case. It'll be silly to subscribe to the rights and put more money, and after XR, the price likely will go down lower and wait for extended periods before going up again. If you're okay with this, then go ahead and subscribe to the rights entitled to you and apply for excess. This will lower down your average price and hopefully it'll come to light one day.

Do look at this post here. Most of the companies that issue right will recover back to the price before announcement of rights exercise between 1 month to 1.5 years. That's just based on statistics on a small sample size. So take it with a pinch of salt.

For people in group B:

1. You can buy nil paid rights during the trading period for the rights shares. But remember, you do have to go to the atm to subscribe (and pay) for them, otherwise they will expire worthless. There could be arbitrage opportunities when the difference between the nil paid rights and the mother share is not 0.258.

2. You can buy the mother shares before XR, get the entitled rights and then apply for a lot of excess rights. This way, you might get a lot more excess rights than the prescribed ratio of 42 for every 100 shares, so you might end up with a lower average price.

3. Buy after XR. Since you have 1 month to 1.5 yrs before the price recovers, you'll have plenty of time to pick and choose a right point to enter.

After the change in lot size from 1000 shares to 100 shares, things need not be so complicated anymore. I'll just go for strategy (3). I'll be looking at this to see if I can get just one more puff out of this used cigarette.


Unknown said...

Don't think want to have anything to do with tis BANANA.

la papillion said...

Hi golden rabbit,

Haha, you must have been traumatised by the falling share price? They didn't even ask for an EGM to see if shareholders want to go ahead with this rights exercise! At least show some semblance of democracy by voting mah

spacesheep said...

If we want to renounce and sell off the rights, how do we go about doing it? Is it via ATM (like how we accept or apply for excess rights) or via SGX trading account? Thanks!

simplefolk said...

Nil Paid rights? is that like warrants on SGX?

la papillion said...

Hi spacesheep,

You have to sell off the rights entitled to you but not subscribed yet (called nil-paid rights) during the nil paid rights trading period. Once you sell them off, do not go to the atm to subscribe or apply for any excess rights. That's one way.

The other way is to sell off your mothers shares before XR. Then you also don't have to worry about any rights issue.

The last option is to sell of partially, then upon XR where you have the nil paid rights, sell off your nil paid rights. You do this if you expect the prices to fall a lot upon XR.

Hope it helps!

la papillion said...

Hi simplefolk,

You can read about more rights exercise here, including nil paid rights:

They are not like the structured warrants traded on sgx, but more like rights warrants. There are kinds of rights, rights shares and rights warrants. But we seldom see rights warrants, so I'll not discuss about it haha :)

simplefolk said...

hahaha too complicated for me to understand. Hope I never have to deal with these :)
Anyway by end of this year, hope to completely move my portfolio fully STI ETF, I think this will be simpler for me :)

la papillion said...

Hi simplefolk,

Haha, if you're not into reits, very likely you won't be touching rights, though some companies do issue rights too :)

Don't worry, if you encounter it, you can always ask around here or just email me :)

ETF doesn't seem to do too well in the past 3 or 5 yrs, haha :) Better to have a more worldwide coverage for etf if you want a appreciable growth :)

sgdividends said...

Hi la papillion,

Your option 2 looks interesting and i am thinking about your statement about the lot sizes going from 1000 to 100. You mentioned the change in lot sizes because one may get allocated to round up to make it non-odd lot right?

Just wondering if this is a unloved share and assuming no one wants it at all, wouldn't one be allocated all excess rights that has been applied? I think the issue about lot sizes would apply only if it is hotly oversubscribed.

About the EGM you mentioned in your comments. . Wouldnt companies need to seek shareholders approval to issue rights? Now this is interesting that you mention it as it seems that REITS don't seem to need shareholders approval as other REITs also don't seem to do it, but companies ( non-reit) do need approval, for example Blumont in their AGM on 22 April 2013.

sgdividends said...

From SGX rulebook:
Part II General Requirements for an Issue of Securities

An issuer must not issue securities to transfer a controlling interest without prior approval of shareholders in general meeting.

(1) Approval by an issuer's shareholders under Rule 805(1) is not required if shareholders had, by ordinary resolution in a general meeting, given a general mandate to the directors of the issuer, either unconditionally or on such conditions to issue:—
(i) shares; or..

I think for REITS, the shareholders gave a General mandate to the managers that they do not need to seek shareholders approval.

Unknown said...

Why there are non-renounceble rights.

Then you must(have money) subscribe or get diluted.

la papillion said...

Hi Sgdividends,

"Just wondering if this is a unloved share and assuming no one wants it at all, wouldn't one be allocated all excess rights that has been applied? I think the issue about lot sizes would apply only if it is hotly oversubscribed."

With regards to that statement, I learnt from experience that what we observed is just a small bias sample space, and it does not reflect the actual sentiments on the ground. I see on the forums and through talking to people that they are selling sabana and/or not subscribing to the rights. I saw that happening in soilbuild rights exercise earlier this year as well. But in the end, the rights exercise turned out pretty much subscribed. I think we should take public polls with a huge pinch of salt. Remember brexit and trump :)

Thanks for the digging out the egm issue. I think you're right. The other rights issue I've seen them asking for approval from shareholders are not reits, so it must be due to the general mandate as you've mentioned. Interesting, I've not thought along that line before :) Thanks for enlightening!

la papillion said...

Hi golden rabbit,

They issue rights to raise money to purchase assets to generate income. Since it's a reit, they don't retain much of their profits, so it's inevitable. Why non-renounceable? I don't know man, perhaps it's less costly and takes less time? Renounceable rights still hve trading period for rights, so it's a bit more troublesome, perhaps administration and cost might be higher too. I'm just making a guess here.

I've had instances where a reit issues non renounceable rights and I don't want to participate in it. So what happens is that I sell off part of the mother shares, then subscribe to the rights and apply for excess. This achieves 2 aims: firstly my average price is lower, secondly I don't commit more money into that single company beyond my comfort level.

Anonymous said...


Hi, would like to know if I can start to sell off my rights share based on their presentation timeline which is from 4 Jan 2017 till 12 Jan 2017?

Commencement of trading of Rights Entitlements  4 January 2017 from 9:00am
Last day of splitting and trading of Rights Entitlements  12 January 2017 at 5:00pm


la papillion said...

Hi KF,

No, you can't sell off your rights entitlement now. You can only trade them during the nil paid rights trading period, which you mentioned is from 4th Jan to 12th Jan. You can sell those rights that you don't want to subscribe during that period. It'll be subjected to market price and you also have to pay commission for the trading of those rights too. So remember to include that in your computation.

Sgdividends said...

Hi LP,

Thanks to you too for enlightening me with this post.

For soilbuild recent rights, I was allocated all excess rights.It's was oversubscribed though.

So regarding the relationship between odd lots and excess rights, there may not be.( A possible variable is because I applied through SCB)

Given Sabana is such a unloved counter which I also think so, it could highly be undersubscribed which means the likelihood of full excess is high. It doesn't make sense to leave a rights issue undersubscribed and yet refund excess rights funds.

Anyway, just to share.
Terp 0.44
Right 0.258

That's a massive discount. Based on data from investment moats blog, getting the rights is like having a dividend yield of 15% ( based on 0.258) and a P/B of 0.44.

Sound like AK, a lousy business is a good investment at the right price Which I'm experimenting with this rights

Sgdividends said...

I think reniunceble rights need to be underwritten , like this is underwritten by hsbc Nd maybank.

So more costly.

Soilbuild was not underwritten non-profit reniuce

Maybe wrong .....

Now just wondering why Sabana wants to pay more by going this route..hmm

la papillion said...

Hi sgdividends,

Well, no point speculating on it, we'll see how the rights exercise goes haha :)

It's really a huge discount. But I guess they have no choice but to make it a lot more attractive to people. I read your blog, I thought you already decided no not going into sabana? Haha, change of heart?

I'll be looking into this, not sure if I'm going to buy it. But if I do, it'll be after XR. I believe the price will continue to go down. There are some people who subscribed to the rights to avoid dilution, applied for excess to average down, but ended up getting much more than they bargained for. They might be looking to sell off their excess. The downward pressure on the price will persist for some time until all these are forgotten and it's back to the fundamentals (which isn't much to shout for lol)

la papillion said...

Hi sgdividends,

I also don't know why they chose renounceable. Will need someone versed in corporate law/finance to enlighten us :)

Sgdividends said...

Not change of heart but a lousy business is a good investment at the right price :).

Anyway yeah let's see how it goes..Got my 1 lot to experiment

la papillion said...

Hi sgdividends,

Haha, remember to apply for a lot of excess rights! Maybe apply for 20 lots of excess and see if you can get most of it :) That will lower down your ave price to an insanely huge amt :)

Sgdividends said...

That's the plan..Hopefully not a lemon

la papillion said...

Hi Sgdividends,

Good luck! Let us know how many excess rights you get okay? It'll be an interesting study on the allocation of rights for small holdings :)

Sgdividends said...

Actually I think using a nominee account may be the factor also.

Assuming none of the others using the nominee account subscribe ,their allocated rights can be released to fulfil my excess rights.maybe that is why I got all my excess for soilbuild which is more than my original shares I had.That was non renounceble.

Now scb has a minimum comm , so most should choose to let the rights lapse, which should have the same effect.

Just a hypothesis.

Will update

Anonymous said...

Hi All,

How do we sell the rights exactly? via atm or trading account? at 0.258 each?

Don't wish to pump in more money on this counter....

Thanks in advance :)

la papillion said...

Hi anonymous,

You have to sell it through your brokerage platform. Look for the counter sabana R or sabana R1. The former is traded with 100 shares per lot, while the latter is traded as 1 share per lot. The price is about 0.092 to 0.094 right now, not 0.258. 0.258 is the subscription price, meaning that if you want to convert the rights shares to ordinary shares, you have to pay 0.258 for each rights shares you have.

Hence, Sabana mother share price - 0.258 = sabana right share price, approximately.

Can you use a nickname next time? easier to refer back to you.

Anonymous said...

Hi la papillion,

thank for your advice, much appreciated.

yup will use a nick in future

Tms said...

Hi, i was on vacation during the right issue period. Can u still buy the right at this period? Thanks for yr advice.

la papillion said...

Hi Tms,

Don't really understand your question. Do you have the sabana mother share when it goes XR? If so, then you're entitled to the rights issue whether you're on vacation or not. You just need to go down to atm to subscribe to the rights by paying 0.258 each and you're done. If you don't want to subscribe, just sell it using the brokerage platform.

If you want to buy the rights shares on the market, then you need to do so by 12 Jan. That's the last day of the nil-paid rights trading period on the market.

I hope I answered your queries?

Tms said...

Hi la papillion, i hv sabana mother share. I want to buy the right per my allocation. Can i still do it this week or before 12jan by ATM? Will i know how many right is allocated to me?
Thanks for your prompt reply.

la papillion said...

Hi Tmd,

You can calculate how many rights you're entitled to. Go read the announcement. It's 42 for every 100 shares owned. If you want to be sure, wait for the offer information statement (OIS) to be sent to you. You can still pay for the subscription thru atm by 18th Jan.

If you're entitled to 200 rights, and you subscribe to 200, then you get 200 rights loh. If you subscribe to 150, then you get 150. I assume you're not talking about the excess.

Tms said...

Hi la Papillion, i just receive the offer information letter from SGX today. Earlier i read about all the questions posted in this forum. I misunderstood that the right offer is over. Now I will buy the right per instruction.
My view in reit is for long term. We getting return every quarter and it will go up when economy recover and when more people do business. 😊 Thanks for your reply...

la papillion said...

Hi Tms,

"My view in reit is for long term. We getting return every quarter and it will go up when economy recover and when more people do business."

Be very careful of your statement. This statement can be very costly to your wallet. Take care!

Tms said...

Hi LP, yes you are correct that reit also carry high risk like share becos it can hv big drop in a short time span from our entry price. Sabana is my first experience in reit. Just parked small budget there due to low interest rate. Yr advice on reit entry level is a good one.
For those bought it this year, buy the right is one way to round down average price. So if price recover say in 1yr, we still can recover our investment. The right is not expensive now so still can afford to invest and get qtrtly return compare to some share with no dividend... Happy new year to all!

Anonymous said...

Hi I just bought the Santana share yesterday. Will I be entitled to the rights?

la papillion said...

Hi anonymous,

The XR is on 27th Dec 2016, so of course you're not entitled to the rights.

Anonymous said...

Hi la papillion, Ic thanks for your reply!

Anonymous said...


I have 30lot of Sabana reit mother shares and gotten 21600 rights. Does that mean i have a total of 51600 shares? Sorry for being noob qns, my first time subscribing to rights.

la papillion said...

Hi anonymous,

When you say '1 lot', you're referring to the old 'lot' of 1000 shares right? If so, 30,000 + 21,600 = 51,600 shares, so you're right. If you want to confirm, log in to your CDP account and check that the shares are really there. The total number of shares will not be reflected in your brokerage account though (since you didn't transfer from it), so do not be alarmed if you didn't see it in your brokerage acct. You should be able to manually key in if you want.

21,600 rights? Hopefully good enuff to average down your cost to make it break even at least?

Anonymous said...

Hi la papillion,

Yes, i am referring to 1 lot = 1000 shares. Thanks for the clarification. And yes, managed to average down with further turnaround of 3k profit with the current price. Phew.

Unknown said...

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