Tuesday, June 26, 2012
Renewable Energy Asia
Renewable Energy Asia: Co will issue 1 right for every 4 existing shares. The right share will be a price of $0.05 each. The right share will also come with an attached warrant of exercise price of $0.05. Ignoring the warrant, if your rights share is trading more than the actual share, you are better off buying the share. However, in this case, the 3 year American-expiry warrant with exercise price $0.05 will have some value so there may be some basis for subscription. If the share price rises above $0.05 in the 3 years, the warrant will have some value. In this case, co is making a loss and the share price is more expensive, to consider subscribing for the rights you may wish to consider a few points 1) Future earnings of co/Potential growth 2) What co will do with the cash injection 3) Possibility of share price rising above $0.05 in 3 years The rights affect the fundamentals of the stock through the injection of new cash and dilution of existing earnings. Note that this will drive relative valuations P/E up since EPS drops. The rights share can be said to be able to partake in the existing earnings pool cheaper (if below the share price). So for any profitable company, fundamentally, you may wish to subscribe for additional rights share beyond your allotment IF the share price is cheaper. Like to emphasise that co has been making losses for 4 consecutive yrs.