Rights issue of TM International Berhad

Maybank rights issue go-ex today. The theoretical price is RM3.66. Closing price is RM3.86, up RM0.20. The total market capitalization increased by RM7.4Bil from RM19.9Bil to RM27.320Bil, which is RM1.4 Bil more than the total proceeds to be raised from the rights issue.

What can one learn from this rights issue?

1. Rights issue in the short run increase the market capitalisation of the Company?
2. PNB and EPF are the main underwriter for Maybank rights issue. Assuming other shareholders do not take up the rights, PNB and EPF are basically underwrite the impending impairment of BII

So, what will happen to TM International (or Axiata) share price? Rights issue of TMI shall goes ex on 8 April 2009.

Can one also assume the same happen to TMI, which see TMI market capitalization increase higher? (translating to higher share price)

Maybank rights issue are 9-for-20; TMI rights issue are 5-for-4. Ratio wise, share capital of TMI will more than double compared to Maybank 45% increase.

TMI share price closed at RM2.26 and it has a market capitalization of RM8.48Bil as at 31 March 2008. After the rights issue, the number of paid-up share capital of TMI shall increase to 8.44Bil from 3.75Bil. Assuming the market capitalisation of TMI stays the same after ex, the share price of TMI should hover around RM1 per share. It can't be. TMI is expected to raise a total RM5.25Bil. If everything stays the same, TMI shall have a market capitalization of RM13.73Bil (RM8.48Bil + RM5.25Bil) and translating to RM1.62 per share.

Well, so far we only talk about the share price, the price factor of the rights issue has not taken into consideration.

So,

• should TMI shareholder sell their share before the ex-rights date and wait to buy back the share later at lower price?
• should TMI shareholder subscribe to the rights issue and average their costs?
• should TMI shareholder sell their rights entitlement and use the proceeds to buy share in the market?

Which one is better option?

Just wait and see.