Thursday, February 9, 2017

Its not me - part 2 - Fraser Hospitality Trust

It's human instinct to want fairness and i am all for fairness. 
In one of the facebook group " Remove Sabana Reit" ,a member by the name of Mr Goh  mentioned that Sabana's rights are renounceable while Soilbuild rights are non-renounceable. This may explain why Sabana's rights expense was 12 times more expensive than Soilbuild.

Renounceable rights can be traded through SGX while non-renounceable rights cannot be traded on SGX. Naturally, since one has to engage investment bankers to list these tradable rights on SGX , it will cost more.

Fair enough. 

However, it doesn't explain why the expenses were 4.2% when the fees paid to the Investment bankers were only 3.6%. 

Where did the 0.6% ( remaining of the expense) of the $80.2 million ( $481,200) go to?
Take note that 0.6% is still higher than the 0.34% total rights expenses of Soilbuild.

Actually to be frank, a rose is still a rose, no matter what name you give it. 
Rights issuance is to raise money and whatever way you want to do it, the outcome is the same. 
And you Sabana, chose to use a more expensive route to raise the money you want.

So do not attribute an oversubsciption of 209.1% as strong support from unitholders when you spend so much money. Soilbuild was oversubscribed by 174.4%.

For some perspective
How about we forget about the above

Frasers Hospitality Trust(FHT) issued renounceable rights on September 2016. 
FHT holds a portfolio of hotels and service residences, and not industrial buildings like Sabana. 
The difference ends here.
Both issued renounceable right, both are effectively REITS and both are pretty close in dates in their issuance of rights.
On a percentage-wise, Sabana really overpayed.

To be fair, a small percentage of a large sum is different from a big percentage of a small sum. But this begs the following questions:

1) Was the issuance of a renounceable rights the most optimal way to raise such a small amount of funds?

2)Was a renounceable rights issuance ( presumably resulting in a higher cost) done because the managers were afraid that their rights will be undersubscribed if done under a non-renounceable rights issuance?  Gimmick to look good?(Yet still want to rebut to say that they are doing well with the 209.1% oversubscription.........)

3) Where did the $481,200 go to? It being higher than the total cost of the non-renounceable rights issuance of Soilbuild?

A lesson can be learnt here. In general, ceteris paribus, a renounceable rights will enjoy a higher subscription rate than a non-renounceable rights. And its pretty common sense. If i hate the company or if i do not have the cashflow to invest anymore, i will sell the renounceable rights to a willing buyer who will subscribe for it. 

1 comment:

  1. Good post and food for thought - thanks for sharing!


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