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With a week to
go before BJFoods (BJF) go ex-rights, it would be good to know how and why the valuations
were fixed as such.
The issue price of the rights at
RM0.65 was arrived after taking into consideration, amongst others, the five
(5)-day VWAP (Variable Weighted Average Price) of BJF shares up to and
including 23 August 2011 of approximately RM0.81 and the theoretical ex-rights price(TERP)
of BJF Shares of RM0.75.
For illustrative purposes, the
TERP as at the date of the announcement was RM0.75 (without adjusting for full exercise of Warrants), based on the
closing price of BJF shares on 23 August 2011 of RM0.825. Based on the above,
the issue price of RM0.65 per rights share represents a discount of
approximately RM0.10 or approximately 13.3% to the TERP of BJF shares.
The Board believed then that the
RM0.10 or approximately 13.3% discount to the TERP of BJF shares should be
sufficiently attractive to entice shareholders to subscribe for their
respective entitlements.
Now let us look how the warrants
were priced at 0.70 sen for conversion.
The exercise price of RM0.70 for
each Warrant was arrived at after taking into consideration, amongst others, the 5-Day Average Price, the
TERP of BJF shares (RM0.75) and the prevailing market conditions.
The Board believed then that the
RM0.05 or approximately 6.7% discount of the Warrants exercise price of RM0.70 to the TERP of BJF shares (RM0.75)
would further enhance the attractiveness of the proposed rights issue.
At today’s price of RM1.38, such valuations
are now ‘out of the window’.
Paying a mere 0.65 sen for each
BJF shares is tantamount to getting another one free. A bonus issue?
As for the warrants, exercising
it for conversion at 0.70 sen is equivalent to getting per share at a steep discount
of 49%.
It would be interesting to watch
how the rights and warrants are traded after the documents are issued for
subscription and trading.
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