KIER Rights Issue

[Gengulphus]

Probably also worth adding that the ticker for the rights is KIEN ... that's the ticker to use for on other websites (or again, will be at least once the admin is up to date).

Bloomberg are the only site other than the London Stock Exchange that seem to list the nil paid KIEN so far. ...

ADVFN did at the time I posted that, at least for their quotes page. I checked out of interest, as I think this is the first time since I understood the theory that I've seen a rights issue in which the share price has dropped to close to the subscription price and then jumped around near it, which is the situation in which the short-term trading value of the rights is highest, so I was curious roughly how much it would be...

The current answer is that the KIE closing price is 407.8p and the KIEN closing price is 9.503p. So acquiring a share by straightforward buying currently costs 407.8p and acquiring one by buying a right and taking it up costs 409p+9.503p = 418.503p, which is 10.703p more. That 10.703p is essentially short-term trading value: it reflects the fact that if you buy the right with the intention of taking it up just before the rights issue closes at 11 am on the 19th (*), you can basically limit your loss to just the 9.503p if the share price falls below 409p before then by deciding not to take them up after all, no matter how far it falls.

(*) Delaying the decision that long is probably only possible for certificated holdings and if you can deliver the documents by hand to the registrar, or in CREST accounts for which one provides input to the CREST system oneself. That's basically limited to professional traders: those with nominee accounts will definitely have an appreciably earlier broker deadline, as will those who have retail CREST accounts (i.e. 'sponsored' CREST accounts, where the sponsoring broker provides input to the CREST system). But although that means that the December 19th deadline is irrelevant to what almost all ordinary shareholders can do, it is relevant to understanding the trading effects on prices.

Gengulphus

[monabri]

A few days old now - article discussing the RI with the CEO.

"The group’s shares fell by a third by the end of trading on Friday, ending the day at 507p, as investors digested the deal. But Mursell said this was a “mathematical adjustment” for the rights issue and once normal trading of the underwritten new shares he expected the group’s overall stock to be trading at around 615p a share."


https://www.building.co.uk/news/kier-bo ... 62.article

At a tad over £4 ......

[Wizard]

A few days old now - article discussing the RI with the CEO.

"The group’s shares fell by a third by the end of trading on Friday, ending the day at 507p, as investors digested the deal. But Mursell said this was a “mathematical adjustment” for the rights issue and once normal trading of the underwritten new shares he expected the group’s overall stock to be trading at around 615p a share."


https://www.building.co.uk/news/kier-bo ... 62.article

At a tad over £4 ......

Presumably he will be filling his boots then, but if he doesn't...

Terry.

[Breelander]

I checked out of interest, as I think this is the first time since I understood the theory that I've seen a rights issue in which the share price has dropped to close to the subscription price and then jumped around near it, which is the situation in which the short-term trading value of the rights is highest, so I was curious roughly how much it would be...

The closest parallel I can remember was FirstGroup's rights issue in 2013. As I held FGP at the time I kept records of both FGP and FGPN prices. I'll PM them to you for your entertainment

[Bouleversee]

The buying price is still only 407p so anyone taking up the rights is not getting a huge gift. That Times article Dod referred to said they were no Carillion and that at 446p they were absurdly cheap and shareholders should back the cash-call. He may be right but they've got a lot cheaper and if I held I don't think it's a gamble I would take, especially having held CLLN and IRV.

[monabri]

Cynically, I wonder how much of the cash from the distressed RI will go towards keeping Mr Mursell in a job and most likely paying him an obscene bonus ?

The Rights Issue is not helped by the general market falls.

[Gengulphus]

A few days old now - article discussing the RI with the CEO.

"The group’s shares fell by a third by the end of trading on Friday, ending the day at 507p, as investors digested the deal. But Mursell said this was a “mathematical adjustment” for the rights issue and once normal trading of the underwritten new shares he expected the group’s overall stock to be trading at around 615p a share."

https://www.building.co.uk/news/kier-bo ... 62.article

I'm afraid that just shows that Mursell (the Chief Executive) has no idea how rights offers and the stockmarket work! Last Friday's drop was not a "mathematical adjustment": there is a "mathematical adjustment" for a rights issue, but it happened at the open yesterday (Wednesday) when the shares went ex-rights and wasn't really observable because such adjustments are very small if the share price is close to or below the subscription price at that time. The share price movements last Friday and on Monday and Tuesday were reaction to the news contained in the rights issue announcement and the implication that it had made the rights issue necessary - I think it's fair to say that investors were not impressed!

Note I'm not saying that Chief Executives need to understand how rights issues and the stockmarket work - not even when their company is doing one. That's understanding that the corporate advisors concerned should supply. It's much more important that a Chief Executive should understand how his company's business works...

In a separate post:

The Rights Issue is not helped by the general market falls.

It's actually more that the underwriters and shareholders hoping to get some cash for their rights (either by selling them or letting them lapse) are not helped by the general market falls. The rights issue will raise 409p per right and the company will benefit by that amount less its costs, so the rights issue is basically certain to succeed at its purpose, i.e. raising the funds the company needs. If the general market falls continue, both the underwriters and shareholders hoping to get some cash for the rights face the very real risk that the Kier share price is under 409p when the rights offer closes, which for the underwriters means having to stump up much more cash than their underwriting fee brought in, to acquire shares at above market price, and for shareholders hoping to get some cash for their rights that they're likely to get less than they hoped for (if selling) or none (if they let the rights lapse).

Shareholders hoping to acquire more shares are as always among those who are helped by the general market falls - just remember to do it by buying rather than taking up rights if the share price is noticeably below 409p!

Gengulphus

[PMTI]

I'd like to chime in and ask some basic questions, if I may? I inherited some KIE shares in a portfolio and have just been holding them, watching their value fall while I figured out what to do with the portfolio and it's contents. Now I'm being forced to try and understand this rights issue and deal with making a choice.

From intently reading this thread, it is my understanding, with KIE share price 382p (at time of writing), the best move right now is to not take up the rights issue. Essentially, why pay 409p/share when I could buy them for 382p?

If the share price is below 409p, and I let the rights lapse, I will be unlikely to receive any payment, because no one else will want to buy the right for a share they could buy more cheaply on the open market, correct? Essentially the same will happen if I try to sell the rights or tail swallow - (or will the underwriters be forced to buy at 409p?) So, I'll be left with a the same amount of shares but a smaller proportion of the company, and no compensation for it?

Another consideration I had, is that I hold the shares in an ISA. Is this forcing my hand? I'm already fully subscribed with this years allowance so I presume I can't put any more money in to take up the rights offer, if that was the way I had chosen to go? I am guessing I could go down the route of tail swallowing mentioned earlier in the thread, since all activity will occur inside the ISA.

I also noticed iWeb are showing the KIEN shares in my portfolio (the amount to which I am entitled) which have a value of 6p but an average book price of just over 16p and are showing a 64% loss. Where have these come from? What does the price mean? I thought they were 409p, not 16p?

iWeb have said I have to make a decision before 13 Dec - is it better to wait until the last minute then, to see what the share price is doing? i.e. above 409p, buy the shares? Below, let it lapse and probably take the hit.

[Breelander]

I'd like to chime in and ask some basic questions, if I may? I inherited some KIE shares ... Now I'm being forced to try and understand this rights issue and deal with making a choice.

You seem to have understood most of it quite well...

Another consideration I had, is that I hold the shares in an ISA. Is this forcing my hand? I'm already fully subscribed with this years allowance so I presume I can't put any more money in to take up the rights offer, if that was the way I had chosen to go?

Exactly what options are available to you depend on your particular broker, not the Rights prospectus. Not all brokers are the same. Although the rights are held inside the ISA the full range of options can include one to subscribe to the rights with cash outside your ISA and receive the new shares as either certificates or in another unsheltered account. I have been offered this option in the past for other rights issues for my ISA holdings, whether you have that option is up to your particular broker.

I also noticed iWeb are showing the KIEN shares in my portfolio (the amount to which I am entitled) which have a value of 6p but an average book price of just over 16p and are showing a 64% loss. Where have these come from? What does the price mean? I thought they were 409p, not 16p?

KIEN it the ticker for the nil paid rights. They are the new shares to which you are entitled and have already been created (hence they appear in your account) but you have not paid the 409p to turn them into fully paid rights (which would have a ticker of KIEF). You could if you wish sell your KIEN now without paying the 409p, currently for that 6p valuation (that of course may change with the market). If you do nothing then your rights will lapse. You are entitled to whatever value (if any) they had when they lapse. It would be credited to you (subject to it being more than a £5 minimum).

[dspp]

So Carillion, and Interserve. Surely they won't be wanting a third failure in building & services ?

- dspp

[PMTI]

Thanks for the reply Breelander

With the share price of KIE currently below 409p, why does KIEN have any value at all? Who would pay 6p for the right to purchase a share at 409p when you can just buy KIE for 382p? (did not update prices for simplicity in following).

If you do nothing then your rights will lapse. You are entitled to whatever value (if any) they had when they lapse. It would be credited to you (subject to it being more than a £5 minimum).

As we get to the pointy end of the rights issue, what typically happens to the value of the rights (KIEN) given the share price KIE is below the price of the rights? Would KIEN drop to zero, since no one wants to spend (say 6p) so that they can buy a share for more than the open market value? In which case tail swallowing or selling rights now would be a better option than letting the rights lapse..

Also what is the role of the underwriters in all of this? Are the underwriters forced to purchase the remaining rights (KIEN), or are the rights cancelled and the underwriters just give Kier a sum of cash to make up the shortfall, and fewer KIEF shares issued? If they have to purchase the rights, at what price? The last market value (say 6p), or must they purchase them at the 409p price so the Kier get all the cash they need?

Thanks

[moorfield]

So Carillion, and Interserve. Surely they won't be wanting a third failure in building & services ?

- dspp

Well they do say some things come in threes. Buses. Profit Warnings. Why should company collapses be any different?

[Breelander]

As we get to the pointy end of the rights issue, what typically happens to the value of the rights (KIEN) given the share price KIE is below the price of the rights? Would KIEN drop to zero, since no one wants to spend (say 6p) so that they can buy a share for more than the open market value? In which case tail swallowing or selling rights now would be a better option than letting the rights lapse..

Generally the nil paid rights price stabilises in the last few days. This may be at zero should the rights not be sought after...

Also what is the role of the underwriters in all of this? Are the underwriters forced to purchase the remaining rights (KIEN), or are the rights cancelled and the underwriters just give Kier a sum of cash to make up the shortfall, and fewer KIEF shares issued?

The nil paid rights have already been created and they will not be cancelled. In a fully underwritten rights offer the underwriters guarantee to take up any remaining rights not taken up by the shareholders. They will pay to make them up to fully paid rights, then sell them on the open market. Obviously they had hoped not to make a loss on the underwriting deal, but that was a calculated risk they took when underwriting this issue.

[Gengulphus]

I was reminded of this rights issue recently in another thread, and checked up on the somewhat incomplete story in this thread. I've posted a summary of the outcome of this rights issue there.

Gengulphus