Posted by: donmihaihai | February 15, 2009

You took away my right……

…… now you are asking for another. That right is of course the “right” of shareholder. Investing in public listed company is basically the same as private company company after filter away the movement of share price. While the return from appreciation of share price is usually being calculated together with dividends to present total returned, that may not all true except in long term, as it should not varies much. The problem is short term so, in a simpler way, what throw out by the company is the returned, which is also the right of shareholder after pumping in cash earlier. The pumping in of capital started much earlier, either privately or through IPO while buying of shares in the open market is just a transfer of shares. By investing in the company, whether privately, IPO or purchasing from the open market, shareholders are actually passing cash to stewards of the company( owner-manager or not) for managing and generating at least a reasonable return over long period of time, preference a huge return over a small invested amount of capital. Well, they are being paid for the job.

But it doesn’t seem to be that way, judging by the number of Rights Issue recently. Those Rights Issue are basically saying, “We failed miserly, can you give us another chance.” or “If you are not going to invest more funds, chances are, you are going to loss every invested capital.” Some even said,” Hey, the opportunity of our lifetime is just ahead of us, give us more funds so we can take advantage of it for you.” The worse what was in printed recently noted by CEO of ARA is that bankers are swimming around REITs and perhaps I guess companies with higher gearing that they should raise funds through Right Issue to improve B/S. Since when are bankers being more able and know the company and industry BETTER than the management? They are just taking care of their own interests which obviously not the interest of shareholder.

Of course, current situation is not good and can turn ugly going forward and is not the norm even among past recessions as being “told” daily through news(is it true?). But there is no excuse. Company must be ran as taking opportunities and maximise return during good time without putting it at any position that will cause them dearly when cycle turned. That is what good and prudent company usually does. So, when the question of valuation is being taken out and special case, shareholder should refuse and dump the stock. In fact, it should be dumped much earlier as the lousy management can be seemed by studying their report cards — financial statements. While it is true that a few stewards perform very well after given a second chance, there is not much evidence that which of those ugly ducklings can turn into a beautiful swan, especially when they have already failed once.

And for companies where Right Issues are to take advantage of the coming opportunities, it is like they suddenly found out that they can buy lot of stuffs at a cheap price going forward, which potential increase the company size greatly so they put forward their hands and ask. That is wrong or show how unprepared these management are, and if they want more capital, the best way for raising capital is selling part of the company(issue new shares to incoming shareholders) when the stock price is rich.

Anyway, I think what happening right now reflect the investment environment before, investment banker, promoter, news reporter and the stupidity of shareholder for the past few years. What sell then were companies earning high ROE, paying increasing dividends and of course in a sexy industry. Companies are basically reducing the amount of capital on hand, taking more debts, paying increasing dividend every year. Some even promised to pay at least a fixed amount yearly which put a floor which they hope that there is a floor for their share price. With that, the abilities of withstanding hardship and taking advantage are being stripped off.

My basic idea stop here because I haven’t find myself studying Rights Issue in details as I have yet to encountered one. My wish is it stays in this way.



  1. Just one thought. Which one you prefer?

    1. Pay out as much dividend as possible. When it rains, ask the shareholders for money.

    2. Pay out as little as possible and keep reserves. Use that for rainy days.

  2. cif5000,

    If I am force to choose, I will choose 2 because I don’t know when the rainy days will come and whether I am able to get out in time. I also dislike putting up more money.

    But I dislike both 1 and 2. For company that can be held for long term, I likes those that strike a balance or at least look reasonable. But if price is being factor in, I can take both.

  3. nice article

  4. In Singapore it is easier to decide because of the one-tier tax system for dividends, and there are no taxes on capital gains.

    However if you were to branch out into other markets, some of the dividends may be taxable and thus eat into your long term returns, and thus it might be better to find companies that grow their retained earnings better.

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