Saturday, October 31, 2015

Enjoying the present - Good buy or goodbye?

Not talking about bonds or ipo or stocks today. I'm not just an engineer, I'm also a poet and an artist and a philosopher. Let's talk about life.

Everyday, I wake up, have breakfast then go to work. While working, I think of lunch and what to eat. After lunch, I go back to work again. In the meantime, I look forward to the end of the work day, where I go home and have dinner. After that, I watch some youtube videos (nobody watch tv nowadays) and read some books before going to bed. The same thing happens again and again for the next 40 years or so. Then I retire and then I die.

Isn't that depressing? Isn't life meaningless? Much ado about nothing!

Humor me. How about we look at life through rose tinted lens? Let's try:

When I woke up, the sky looks bright and brilliant with just a hint of dark clouds looming on the horizon. The sun light pierces through the cloud, much like Gandalf dispelling the darkness of the sky scene in lords of the ring. What a beautiful juxtaposition! My day looks good ahead already!

This one lah - that LOTR scene where the old man shoots lights to the skies

This is what I mean - Sun light piercing the clouds. Taken from my humble home.

Then I went to work. On the way there, I passed by a coffeshop on the way to the mrt, and I saw two birds chirping noisily over a scrap of food on the grass. Mynahs. Have you ever wondered why pigeons and sparrows don't fight over food scraps? It's always the mynahs and *gasp* the crows that do all the shouting and bullying. Pigeons and sparrow just share.

And the grass are blooming like crazy! Goodness me! The little white parachutes carrying packets of seeds act entirely opposite to our notion of parachutes. They start off from the  earthly stalk of the grass, then when the wind blows, they start flying up to the skies and spread their little packets everywhere. My wife is the one who first introduced me to this wishing plants, as she called it. She will bring a stalk, make me close my eyes and make a wish. Then blow it to send these tiny messengers on parachutes off, where they will send my wishes up to the universe.

Looks something like this

I can go on and on but I think you get my point. There's beauty in everything we do, if only we can afford to stand and stare. Even if the day is a lousy day, I think by focusing on the minute but beautiful details, it'll be better. Delusional? Maybe, but if I keep thinking about all the bad and negative stuff, that's also delusional. And psychotic and sadomasochistic.

I prefer mindfulness. Why are we in such a hurry? Even when we reach our destination that we're so anxious to be in, we're hurrying off to leave again. Life then becomes a series of destination, moving from one place to another place. We can enjoy the here and the now by focusing on the present. The future might be bright and utopia but let's enjoy the pretty and pleasant journey now.

Thursday, October 29, 2015

Jumbo Group IPO - Good buy or Goodbye?

Out of curiosity, I wanted to find out more about Jumbo Group Limited IPO. This is the group that is famous for their Jumbo Seafood and their signature Jumbo chilli crab, black pepper crab, salted egg golden prawns and crispy baby squids. They have restaurants under the Jumbo seafood brand in Singapore and PRC too. Besides this, they also have JPOT, Ng Ah Sio Bak Kut Teh, Chui Huay Lim Teochew Cruisine, J cafe, Yoshimaru Ramen Bar, as well as Singapore Seafood republic. Singapore Seafood republic is found in Japan, specifically Tokyo and Osaka.

To be honest, I seldom visit any of their restaurant brand. Even the famous Jumbo seafood restaurant at east coast (I live in the east), I've been there only less than 5 times in my entire life. It's always a touristy kind of place, and I don't feel like spending a lot of money to eat okok food. But that's just me. Neither did I visit Jpot, or Jcafe or any of their outlets, sad to say, haha!

But what's impressive is their results. Since the finalised version of the prospectus is not up yet, I've to work on the preliminary one. Facts might change, but anyway, here's a summary of the key financials:

Here's a few key points:

1. Revenue had been rising, together with earnings after tax. This rise in earnings is not likely fueled by debts, as you can see from their Assets/Equities from 2012 to 2014. It seems to be driven by the greater profit margin of their business, which is always a good thing.

2. ROE at 23% to 26% is fantastic, especially so when they are not crazily leveraged. As a comparison, ROE of Oxley, the company that I recently covered while trying to decide whether their bond is a good buy or good bye here, shows an ROE of about 18% in 2015, but their assets/equities (a sort of financial leverage) is 6.81 times! Okay, granted, that's not fair since they are of different industries. Let's compare with other f&b establishments listed locally - Japan Food holdings and Soup restaurants.

Here's Japan Food holdings (figures in '000):

And here's Soup restaurant:

If we compare these 3 f&b places, we can see that the ROE of Jumbo is in a very good and envious situation. Jumbo's ROE is about 25% compared to Jap Food of about 20% and Soup restaurant of about 7%.

3. Great net profit margins. Their net profit margin varies from 8% to the more recent 12% in 2014. I think f&b business is kind of hard to have high profit margins, and Jumbo is doing a great job as a company (but ripping us off as consumers!). Their top 3 things in 2014 that reduces their net profit, besides tax, are raw materials and ingredients (43.3% of total cost), wages and salary (27.1%) and lease of premise (9%).

It's interesting when we compare with Jap Food holdings in 2015, because the top 3 cost are lease of premise (31,1% of total cost), wages and salary (28%) and raw materials (19.4%). So are Japanese food materials less expensive, seafood ingredient more expensive or somebody is serving us lousy ingredients? lol

Just for curiosity, the top 3 cost in 2014 for Soup restaurant are wages and salary (36.2% of total cost), raw materials and ingredients (23.9%) and lease (17.5%).

4. ROA or Revenue/Assets - this gives us how much profit they can generate from investing in their assets. It's not shown in the table, but Jumbo has consistent ROA throughout 2012 to 2014 ranging from 16% to 19.4% (in 2014). Very good, when compared with that of Jap Food, which is about 12 to 18% and Soup Restaurant of about 2 to 5%.

5. Jumbo do not have a lot of long term debts. Their total bank borrowings is about 4 to 7% of their total liabilities. One year of their net profit can cover their total bank borrowings 7 to 17 times over, so it's really not a concern. If you use their free cash flow (FCF), each year of operations can cover their total bank borrowings by 4 to 12 times. It's a very robust balance sheet that they have. Comparing with Jap Food holdings and soup restaurants, I'm quite surprised that F&B business do not have a lot of debts. Perhaps it's such a good cash business that they don't need debts to tide over their cash flow problems, if any.

6. Jumbo is generating free cash flow like crazy. I'm lazy, so I'm using FCF = Net operating cash flow - cash needed for PPE as a proxy. It's stable and consistent, can't ask for more.

It's hard to say if this is a good buy or good bye without knowing the ipo price. Since it's IPO - It's Probably Overpriced, but it'll be good to look at this again. What I like about Jumbo is that it's a cash business, not highly leveraged, great ROE, good net margins for a f&b business and best of all, fantastic free cash flow. What's not to like about it?

Perhaps the IPO price, lol

Latest update:

Many thanks to musicwhiz who told me that the IPO prospectus is now in Catalodge under SGX. Strange, I always thought that Opera is the place to find such prospectus. Anyway, with that finalised prospectus, things are a lot clearer.

They are listing it at an IPO price of $0.25

Here's some pro forma per share data:
NAV: $0.068
EPS: $0.027
PER: 9.3x
Dividend policy: No fixed policy. Intention to distribute not less than 30% of net profits in FY2016 and FY2017. 30% of EPS of 0.027 will be 0.81 cts, representing at least a 3% pa dividend if FY2015 earnings remain the same.

With an IPO price of 25cts, Jumbo is priced at 3.7 times of NAV. Let's compare the other two f&b enterprise listed here:

Jumbo NAV: 6.8 cts, IPO price: 25 cts (3.7x)
Japan Food holding: 2.5 to 2.8x NAV
Soup restaurant: 4.8x NAV

What about the PE ratio of Jumbo?

Jumbo EPS: 2.7 cts, IPO price: 25 cts (9.3x)
Japan Food holding: 15 to 22x
Soup restaurant: 4 to 6x

Looking at the ratios, the business of Jumbo seems more like Japan Food holdings than of Soup restaurant. If we go by that standard, then the PE ratio of Jumbo might ultimately trade around 15 to 22x, which means a price range of about 40.5 cts to 60 cts. I'm not looking at NAV because it's not really relevant in such a business.

They are putting out 2 million shares for public offer (for us) and 86.233 million shares for private placement. There's also 72.1 million shares (separate from private placement) taken by cornerstone investors (namely Orchid 1 Investments Pte Ltd by Heliconia capital management- 40 million shares, and Mr Ron Sim, CEO of Osim - 32.1 million shares). With only 2 million shares out for retail investors, this is going to be as hot and spicy as their signature chilly crab.

Verdict: Good buy, if you can get any. More likely you'll get insufficient number of shares to make it worth a stag after commission, haha!

Wednesday, October 28, 2015

Another pref shares bites the dust..

Just received word that the OCBC Bk 4.2% NCPS preference share is going to be fully redeemed. That is very bad news. As it is now, there's not a lot of preference shares by the banks listed in at SGX, and yet one by one those good ones are redeemed. There used to be UOB's preference shares too, but that is gone by the wind too. Now, there's just the preference shares by CityDev, Hyflux, another OCBC 5.1%, DBS 4.7%, Fibrechem and lastly United engineers.

OCBC is going to pay the last preferential dividend of $1.00 x 4.2% x 183/365 = $0.02106 per share and redeem back the preference shares at $1 par value. The trading price now is 1.020/1.025, so it's about right. If ever the price drops below 1.020, you should just buy it because you get net returns after getting paid your last dividends and losing out due to the capital loss from buying above par (excluding commission).

The redemption date is on 2nd Dec 2015 and the counter will go XD after 27 Nov, and will cease trading on 30th Nov and will be delisted on 22nd Dec 2015. Proceeds from the redemption of the preference shares at par value will be paid on 21st Dec 2015.

Personally I don't have any of this, but my parent's portfolio which I managed had a substantial chunk of this. Need to find a place to park their money after I get the proceeds from the redemption. So many low yield but high quality retail bonds out there, so I'm not afraid, haha

Tuesday, October 27, 2015

Oxley 5% bond - Good buy or Goodbye?

I realised that my bond articles are quite widely read. It was quite shocking to see that all my highest read post are bonds - Aspial, Perennial, Frasers, hyflux pref shares (kind of a bond) etc - all of them are up there in the highest number of pageviews throughout the entire history of nearly 10 yrs,  So let me say this in the clearest way possible. You don't just read what others write about bonds and then you decide whether you want to follow. Even if I decide to buy a certain bond, it doesn't mean that it's suitable for you. Even if it's suitable for you, it doesn't mean that you bought the right amount according to your portfolio allocation. Even if you bought the right amount to diversify in your allocation, it doesn't mean you have the holding power. So many unknowns. I'm writing for myself and for my own situation, so please do your own due diligence. At best, this is just a platform for discussing the virtues (or sins) of any particular investment and at worse, I'm just a idiot not knowing what I'm talking about. You should assume and learn towards the latter. I hold no more special knowledge than any of you.

Okay, that should be clear enough.

Oxley, mentioned that they are going to issue bonds of 5% pa for a duration of 4 yrs. The details are as follows:

Issuer and guarantor: Oxley MTN Pte. Ltd is the issuer and Oxley Holding Limited is the Guarantor.
Issue price and board lot: $1 par value, board lot size of 1000
Maturity date: 5th Nov 2019 (4 yrs from now)
Payment: Twice a year, 5th May and 5th Nov every year, from 5th May 2016 onwards until 5th Nov 2019
Credit rating: Unrated
Amount of bonds issued: $125 mil in total with $100 mil for public retail tranche and $25 for institutional investors. Option to increase up to $300 mil in total.

Application: Opens from 27th Oct 2015 9am to 3rd Nov 2015 12 noon. Min $2k and incremental of $1k thereafter

Expected timetable of key events:

The surety of a bond depends on the solvency of the underlying company, so let's take a look at Oxley.

Here's a few pointers:

1. This company has many many bonds, issued at various year and matured at different years ranging from 2015 to 2018. They have a total of $725 million fixed rates notes (i.e. bonds), all listed in the table below:

If you look at bond number 3 and 4 which expiring in 23rd Sept and 6th Nov 2015 respectively, the total amount is $135 + $90 = $225 million. Both are at a rate of 4.75% maturing for 2 yrs. Based on the overwhelming response from the most recent Aspial and Perennial bonds, it seems they are likely to increase the size of the offering. Perhaps the bond is to replace these 2 that are expiring at the end of this year.

Considering that they had been issuing bonds every year since 2013, I think they are also going to issue bonds next year, possibly at a higher rate than 5%, though not necessarily to retail investors. I think they are using a series of bonds/notes to fund their business.

2. The total liabilities to total asset had been dropping steadily since 2011. They are listed in 2010. The TL/TA ratio is shown below.

2012 - 0.90
2013 - 0.89
2014 - 0.86
2015 - 0.85

3. Having debts is okay if they can pay off the debts with their earnings. (The) Boring Investor posted an excellent article that inspired me to pick up my dusty copy of Security analysis again to review the fixed income investing section. Will do that during the holiday season to sharpen my skills. Till then, I'm referring to his clear and concise method of calculating earnings coverage ratio. Any error in calculating it is solely due to my sucky skills at reading financial statements.

Here goes the earnings coverage:

2012 - 8.21
2013 - 15.46
2014 - 12.17
2015 - 3.98

The aim is to be more than 3 times, and Oxley passed in all the years since listing. I would wish for a longer period of listing to see how they performed during the crisis years, but that's the data I have.

4. ROE

I'm not so concerned about ROE, more about the Asset/Equity ratio. You can see that this is really a business that is funded by debts. Dupont analysis of ROE shows us what drives the business forward. Assets/Equity is also known as a kind of financial leverage. As we can see from the total liabilities to assets in point 3, it is dropping, but it's still freaking high.

Conclusion: This is probably more risky (to the bookmakers) than Perennial, based on the yield and duration of the bond. Oxley offers 5% pa for 4 yrs, while Perennial is 4.75% pa for 3 yrs. Perennial don't have a long history to see their results, while Oxley has a history mired in debts and bonds. What's the chances of Oxley defaulting? I don't know, but I think they should be able to repay off their bond debts since it's not floating, so nothing really to do with interest rates. The only problem is whether their business can still do well if we're expecting higher interest rate environment, with the cost of borrowing money to buy property going to be higher, which invariably affects their bottom line.

Man, this is a hard one for me to decide. I'm sitting on the fence for the decision - I really don't know.

Monday, October 26, 2015

Sneak preview: Oxley 5% bond, 4 yrs maturity

The local retail bonds scene is bursting with action this year with so many choices for people to invest in. I think it must have something to do with the ssb savings bond or the impending rate hike. Suddenly everyone is rushing to build up their cash reserves before something happened. There's Frasers 7 years @ 3.65% in May this year, Aspial 5 years @ 5.25% around August, and Perennial 3 yrs @ 4.65% which haven't even finish completing their ipo bond exercise.

And now we have a new kid on the block, and that's Oxley holdings.

There's scant details of the bond, where news of it is just fresh out of the oven here. $100 million will be issued to the general public and $25 million will be for institutional investors, with DBS as the book runner for the bond. I'll blog more about it when details of the bond comes out. As it is, Oxley holdings holds several residential/industrial/commercial properties in Singapore (about 80% of which are freehold) and some in London, Cambodia and China.

Didn't look through the annual report much, but at the very least they are making money in 2013 and 2014. And they had been giving dividends since 2011 without fail - so that's always a good sign. Will have to do a more thorough check up later when they have more details of the bond.

This looks good for me because it fulfills the requirement of being at least 5% in order for my 1k per month passive income (again based on 240k capital) to work. It's good to have an instrument that you don't have to care about prices for the next 4 yrs. A small holding in this shouldn't go wrong.

Update as of 27th-Oct-2015: The new post on Oxley bond is here.

Tuesday, October 13, 2015

Perennial Real Estate 4.65% bond - Good buy or Goodbye?

Perennial Real Estate Holdings is launching their first retail bond. It's a 3 year bond paying 4.65% pa, payable semi-annually and with a min amount of $2k. Is it good buy or good bye?

Beautiful name, this perennial word. Perennial means lasting or existing for a long or apparently infinite time; enduring or continually recurring. Unfortunately, the word perennial for this company refers to the hope that it'll last forever and not a fact of its actual existence. How so?

I went to SGX website to take a look at the issuing company's financial statements, and realised that there's only 2 yrs worth of it. It's essentially one year if you exclude FY2014, because the figures between the FY2014 and FY2015 doesn't make sense. From their circulars, I read that last year in 2014, they went through sooo many corporate changes that I was not even sure I'm reading it correctly. Perennial Real Estate Holdings originally came from St. James Holdings Limited, and they are going to dispose all their existing business to Citybar Holding Pte Ltd, consolidate their shares to the tune of every 50 to 1, offer of Perennial China Retail Trust by exchanging their shares (don't ask me the details), transfer their catalist listing to main board and many other proposals, and thereafter change their name to the present Perennial Real Estate Holdings Limited.

Yeah, this St. James powerstation

It is this Perennial Real estate holdings that is issuing the 3 yr bond of 4.65% pa. So this company is one of the many shape shifter company that changed name and business until nobody really knows who they came from and where. As such, they really only have 1 year of financial statements to look at. Nothing really to see, so this is going to be short.

A few key points:

1. Their total assets consists mainly of China (70%) and Singapore (27%). Their Singapore assets consists of CHIJMES, TripleOne Sommerset, Capitol Singapore, House of Tan Yeck Nee, AXA Tower, Chinatown point and 112 Katong. I don't know how well their business is in China, but I don't really like their properties in Singapore. They are really no where near the quality of Capitaland and Frasers.

2. How well a bond does depends on how well the issuer company do, especially over the duration of the bond. I have no idea how they are doing, given the short history of their 'new' company and hence have no idea how well the bond will be doing. I don't even know how well their management is going to be like.

3. Sponsors come from Mr Kuok (CEO of Wilmar), Mr Ron Sim (CEO of OSIM), Wilmar International Ltd and Mr Pua (CEO of this group). Not exactly comforting or reassuring to me.

That's it.

The good thing about this bond is that it has a short duration, hence it won't be so affected by the impending interest rate hike. Anyway, if the company lasts that long and you hold the bond for the full duration, it'll be capital guaranteed. The recent Aspial, 5.25% pa, 5 yr bond is trading at $1.017 now, up from $1.000 par value and I'm quite sure this will be something like that too. Frankly, looking for a high yield bond coupled with the inherent risk that comes with it by sacrificing safety seems silly to me. Don't forget, there's always the 'risk-free' SSB with possibly 3% pa (it's now 2.78% pa on average) if you hold for 10 yrs. So is it a good buy or good bye for me?

It's a good bye for me. Thanks but no thanks.

Wednesday, October 07, 2015

Frugality isn't just about saving money

Frugality isn't just about saving money.

This article here says exactly what I'm thinking. To me, frugality is about being efficient, which means you spend the right amount of energy, time and money without wastage. And efficiency varies according to the different life stage that you're in.

For example, when I was a student with very little pocket money to spare, I'll go all the way to some cheap bargain sales at Peninsula Plaza to buy a pair of track shoes. There are many shops there that are in close proximity to each other, and you can bargain there, so it'll be easier to find something good and really affordable. But the downside is that to save that $20-$30 bucks, you might have to spend 1 to 3 hrs there. While I would certainly do that in the past, I wouldn't care to do it now. What had changed? My time became more precious, so spending 1 to 3 hrs to save $20 to $30 bucks is not what I would do now but is something I would gladly do in the past.

Efficiency can be seen as a percentage also. If I have $200 in my bank account, saving $20 is a big deal to me because that's easily 10% of my networth. If I have $200,000 in my bank account, saving $20 is just a drop of my networth - a mere 0.01%. No way am I going great length to save 0.01% of my networth, especially if it takes up a lot of my time. This can be easily applied to our free time too. During my student phase, there's school holidays, so I'm practically free for 15 hours per day, every day, for 1 month (not much homework in the past). That's a freaking 450 hours of free time. If I have to queue for 5 hours for a freebie, why not? It's just about 1% of my free time. However, when I'm working, and I only have 24 hours of weekend time free, spending 5 hours will take up a proportionally bigger 20% of my time. As a full time tutor, especially now during the exam season, I really only have about 8 hours of free time per week. Spending 5 hours to queue up? No freaking way. I'll rather spend the money and use the time to sleep.

So, time is money. When we're young, our time is cheap and we don't have a lot of money. Hence, we spend time to save money. When we're older, (hopefully) our time becomes more costly, and we have a lot of money. Therefore, we spend money to save time.

But habits can be hard to correct. Imagine a big part of your life you've been trying to spend time to save money. The cost of your time might have increased tremendously but you're still stuck to the habit of using time to save money. That would not be wise and efficient, because while you're a good saver of money, you're not a good saver of time.

Monday, October 05, 2015

For the Advanced Croesus Rights players

Alright, now that you've read the basics here, you can progress to more advanced stuff.

Nicholas Nasim Taleb (NNT) is my favourite modern philosopher and it's a good thing that he dabbles in the market too. His concept about antifragility - to make it out better when crisis strikes and not merely to survive it - is enlightening. So with regards to the rights exercise of Croesus Retail trust, how do we best capitalise on this?

First, you need to know the Theoretical Ex-Rights Price (TERP), which is the theoretical price of the stock after all the rights exercise. Since the price of the Croesus is about 80 cts (plus minus 1 ct), let's just say it's 0.80. The rights exericse states that you'll get 22 rights shares for every 100 mother shares @ 61 cts each. Hence the TERP = (0.80*100 + 0.61*22) / (100 + 22) = $0.766. Bear in mind that this is all theoretical and the TERP will vary according to which starting price (I picked 80 cts) you choose. I like to choose the price when the counter goes XR, but there's really no reason why you couldn't choose others.

Why is it important to know the TERP? To maximise your benefits from the rights exercise, you need to get as low a price for the shares as possible. This usually means you want to get as many rights shares at 61 cts as you can possibly get in order to get an average price per share below the TERP if possible. And there are 3 ways to do so:

1. Get as many mother shares before XR as you get. The more mother shares you have, the more entitled rights shares you will get, based on the ratio of 22:100. This is a lousy way to do so because it will give you proportionally the number of right shares, not more and not less. Anyway, Croesus went XR last Fri, so this option is not available anymore.

Scenario 1: I have 1000 shares which I bought at 87 cts, so I'm entitled to 220 rights @ 61 cts each. I'm a casual rights participant, and I just want to get it over and done with. Before 23rd Oct, I go to the ATM and pay $134.20. I will now have 1000 + 220 = 1,220 shares. 

My average price is : (1000 * 0.87 + 220 * 0.61)/1220 = $0.823 per share

2. Buy more nil paid rights during the nil-paid rights trading period. During the nil paid rights from 9th Oct to 19th Oct 2015, you can buy or sell the rights that you are entitled to. If you have 100 mother shares, you will have 22 entitled rights that have not been subscribed or paid for yet. Some investors, for whatever reasons, might choose to subscribe partially or not at all. So this period is important for these people to sell. Otherwise, if you don't subscribe by the closing date (23rd Oct 930pm by ATM), the nil paid rights will be rendered worthless.

This is so important, so let me repeat. If you do not wish to subscribe for your entitled rights (in our example, the 22 nil paid rights), you need to sell it between 9th Oct to 19th Oct. If you don't sell it, you'll just lose money that you're entitled to. You also need to pay brokerage like the trading of normal shares.

Now here comes the interesting part. You can choose to buy more nil-paid rights during the trading period also. If the TERP we calculate initially is $0.766 and the rights shares are priced at $0.61, then the nil paid rights should also trade at $0.156 (0.766 - 0.61 = 0.156). The equation is this:

Price of nil-paid rights + 0.61 = TERP

Now, the theoretical price of nil paid rights is $0.156, but the market price varies according to sentiments. If the price of the nil paid rights on the market is trading at less than 0.156, then it represents a good buy. If the price of the nil paid rights is trading at more than 0.156, then it represents a good chance to sell off any that you don't wish to subscribe. But remember, in total, your total nil paid rights = (entitled nil paid rights + nil paid rights bought during trading period). You need to subscribe by paying for both before 23rd Oct.

Scenario 2: I have 1000 shares which I bought at 87 cts, so I'm entitled to 220 rights @ 61 cts each. During the nil paid trading rights period, I saw that the nil paid rights are trading at $0.150, which represent a good value. I proceed to buy 200 shares at $0.150. Before 23rd Oct, I subscribe by ATM for all the entitled rights (220 shares) and nil-paid rights that I bought (200 shares), paying a total of $195.2 (420 x 0.61 = 195.2).

My average price is : (1000 * 0.87 + 200 * 0.150 + 420 * 0.61)/1420 = $0.814 per share (does not include cost of brokerage incurred when buying 200 shares @ $0.15)

3. Apply for excess rights shares. There will be people who do not want to subscribe to it and people who wants more of the rights units because it's cheaper than the mother shares. You can apply for more than the amount of shares allocated to you. For example, if you have 1000 shares and you are entitled to 220 rights, you can go ahead and apply for 500 rights shares. During the subscription period before 23rd Oct, you need to pay 500 x $0.61 = $305 first. The 380 shares that you are not entitled for but nevertheless applied for is called the excess rights.

But subscribing more doesn't mean that you will get all. Priority is given to those who wants to round off their odd lots. Since the board lot size is reduced from 1000 shares to 100 shares, there is less rounding to do. Those excess rights shares that you applied and paid for without success will be refunded to you automatically to the bank account that your ATM is tied to.

For hot counters (possibly this one), there's really no point subscribing for more than the amount of lots that you have. If you have 10 lots initially, you will likely not get more than 10 lots of excess. My rule of thumb is just to put in twice the amount of money that you are entitled to. If you have 1000 shares, you're entitled to 220 shares and you have to pay $134.20. Just apply 440 shares (220 allocated and 220 excess), paying $268.40 will be more than sufficient to 'tikam'.

Scenario 3: I have 1000 shares which I bought at 87 cts, so I'm entitled to 220 rights @ 61 cts each. I want to apply for excess rights and I hate odd lots, so I applied for 80 more excess rights through the ATM @ 61 cts each and paid $134.20 (for the entitled 220 shares) + $48.80 (for the excess 80 shares to round up a lot of 100 shares), giving a total of $183. Assuming I got all the excess 80 shares that I applied for, I effectively have 300 shares @ 61 cts each (220 + 80 = 300).

My average price is : (1000 * 0.87 + 300 * 0.61)/1300 = $0.810 per share

4. If you don't have any mother shares of Croesus, rights exercise present an excellent opportunity to enter before XR. Since the counter went XR last Fri, this option is no longer available, but for educational sake, let's just run it through.

You generally want to buy enough mother shares before XR so that you have the number of excess rights furthest away from one round lot of 100 shares. The table below shows some of the 'correct' number of mother shares you need in order to maximise the number of excess rights needed for rounding. Since priority is given to people who need to round off their odd lots, it's wise to maximise the number of excess rights needed for rounding, so that you will have the greatest probability to get them at a cheap price of 61 cts each.

As a counter example, If I have 4500 mother shares before XR, I'll be entitled to 990 rights. To round it to one full lot, I just need 10 shares, so that's not really good. 98 is the highest ever you are going to get based on the 22:100 ratio. For those mathematically inclined, the number of mother shares to own before XR to maximise shares for rounding is (5000n - 900), where n are the positive integers beginning with 1.

Again, this option is no longer available since Croesus went XR last Fri, so don't do it. With the board lot size changed from 1000 shares to 100 shares, this is getting less significant too.

Scenario 4: I've heard of Croesus but have zero shares now. I'm excited because Wong Fei Hong also have it. I want to maximise the number of excess rights that I have. Since greater priority is given to people who applies for excess rights to round their odd shares, I want to buy mother share now before XR so that I can have the maximum number of excess rights. Hence, I want to buy 4,100 mother shares so that my entitled rights is 902 shares. This will ensure that the chances of me getting 98 excess rights @ 61 cts is given the highest priority.

Before XR, I bought 4,100 shares at $0.81. I'll then be entitled to 902 nil paid rights. Before 23rd Oct, I go and pay up $550.22 for my 902 entitled rights and also subscribe for another 98 excess rights for $59.78, paying a total of $610.

My average price is: (4100 * 0.81 + 1000 * 0.61)/5100 = $0.770 per share (does not include cost of brokerage incurred when buying 4,100 shares @ $0.81)

In summary, regardless of which options or combinations, it's important to remember the following basic rights information:

1. Nil paid rights entitled to you need to be subscribed by paying 61 cts before 23rd Oct. As for the nil paid rights bought during the nil paid right trading period between 9th and 19th Oct, you will need to pay brokerage fees AND also to pay 61 cts before 23rd Oct. Failing which, it will be worthless after 23rd Oct. In fact, any nil paid rights not subscribed will be worthless.

2. If you don't want to subscribe or choose to subscribe partially, you need to sell off your entitled rights during the trading period from 9th to 19th Oct. Failing which, it will be worthless after 23rd Oct.

3. Any transactions using brokerage platform need to pay brokerage fees. Any transactions using ATM need only to pay a service fee of $2, if I recall correctly. Hence, there's brokerage fees to be paid for nil paid rights bought or sold during the trading period and there's no brokerage fees needed to be paid for application of excess rights because it's done over the ATM.

4. The difference between excess rights, nil paid rights entitled to you and nil paid rights bought during trading period is this:

For the Casual Croesus Rights players

Croesus retail trust is doing a rights exercise. The mother shares just went XR last Fri and I thought I should highlight the important points to remind myself to take action. I always remember someone losing a huge amount on rights exercise in the past because of some misunderstanding. I hope this won't happen to any holders of Croesus.

Here's the details from here:

The most important dates are the trading of rights entitlements, otherwise known as nil-paid rights, from the 9th Oct to the 19th Oct 2015. The second important date to take note is the closing date of the rights payment by ATM, which is on the 23rd Oct 930pm. Please do not forget to subscribe to your rights by paying for it, usually through the ATM, by 23rd 930pm. If not, all your rights will be rendered worthless!

For those who are new to rights, here's the main flow of events.

1. The company issuing the rights, called the mother share, will announce the rights issue. They will go cum rights (CR). If you buy the mother shares while you still see the CR status, you'll be entitled to participate in the rights exercise. After ex-rights (XR), you can't participate in the rights on any mother shares you bought from XR onwards. In other words, you're not entitled to any rights shares from this point onwards. The mother share, Croesus retail trust, went XR last Fri. So, if you only buy it today, you won't be participating in the rights.

2. After XR, in about a week or so, you'll receive a thick set of documents in your mail called the Offer Information Statement (OIS). In it, you'll get a set of documents detailing why they are doing the rights, the timeline (as shown above) and the way to go about subscribing for the rights. It's very detailed, so for first timer you should read all of it to get a gist of what to do. They even give different scenarios as an illustration, so really, go read it because it's very informative.

Inside the OIS, there is also a white form, I think it's simply called Form A or the ARE. In it, they will state the number of rights shares you are provisionally allocated based on the number of mother shares you have by XR date. Since this rights exercise is 22 rights for 100 shares @ 61 cts per rights shares, if you have 1000 mother shares by XR, you'll be provisionally allocated 220 rights shares. These 220 rights shares are known as nil-paid rights.

Why nil-paid? Because they have not been 'paid' up, or subscribed. You still need to pay 61 cts for each nil paid rights allocated to you. So, in our example above, since you have 220 nil paid rights, you'll need to eventually cough up $134.20 to subscribe for it. Thereafter, the nil paid rights gets transformed into normal shares. To differentiate this new addition of shares from the original mother shares, they call it the rights units. So after subscribing or paying up 61 cts for every right entitlements (or nil paid rights), they get transformed into normal shares (or rights units).

The last step on subscribing is important. Again, if you didn't subscribe and pay up, the nil paid rights provisionally allocated to you will be rendered worthless. And the last date to pay for it is on the 23rd Oct, 930pm, if you choose to pay through ATM.

3. How to subscribe and pay so that your nil-paid rights get converted to rights units? There are two ways - firstly it's through form A that is mailed to you together with the OIS. I blogged about this here.

The second and easier way is to apply through ATM. I always do it through ATM.

Just go to the ATM screen, click on other transactions, then look for something like “ESA – IPO applications”, then find the Croesus Retail trust. You’ll be guided to type in the amount of rights that you wish to accept out of the allocated (e.g you may be provisionally allocated 5000 rights but may want to accept only 2000), plus another separate screen where you’ll be guided to type how many excess rights you want to subscribe. Then you’ll come to a screen where they will tell you how much you have to pay. Make sure this screen you check carefully before pressing. I know for DBS you need to pay a service charge of $2.00, not so sure of other banks. If you applied through ATM, then do not send any forms! It’s done – just wait for them to mail you how many excess rights you’ve successfully got and how much you applied for.

On 3rd Nov 2015, the rights units will start trading as normal original mother shares. There will be no distinction between these two and the rights exercise is deemed to have completed.

That's all, three basic steps. Okay, ready for complications? There are 2a, 2b 2c etc and 3a, 3b and 3c etc, which I'll give fuller details in future post for more advanced rights participants. I'll share some information regarding excess rights, how to make the best out of the rights exercise and also the part about trading of the nil paid rights in near future post.