LIC & LIT Whitefield Limited SPP

It was AFI. Announced an SPP at a fixed price just before the market tanked due to GFC.

Usually once you send in your money to participate that's it, you cannot get the funds back (those were the days of sending off a cheque.)

When the share markets threw a hissy fit, the price of AFI's SPP was well below the going market rate. AFI then announced those who had applied under the SPP could ask for their application moneys to be refunded. It was a decent thing to do I reckon but it maybe it was also done with a view to avoid adverse criticism. The management may go about things quietly but they are not stupid.

 

Like the admission "still prone to fiddling." Made me smile as it brought back some distant memories.

That's the 9.75c ff forgone for current. So no account of the possibility of 10c ff ($348 and $149 franking) in June and the following December and the subsequent June, etc? To me that's where it adds up but that's me. Others should apply their approach.

 

Geez how quickly time flies. Didn’t seem that long ago.

 

Fiddling is banned in our written investment plan nowadays. For each time it works out ok there’s half a dozen others where you just want give yourself a swift kick up the arse. Has caused me so much grief at times.

I like Thornhill’s strategy. Whenever you get the urge to fiddle with your investments take two aspirin and lie down immediately until the urge goes away. In my case I replace the aspirin with as many home brews as it takes.

 

But you’re thinking about potentially selling the lot?

 

Chill Oh Home Brew Connoisseur (in moderation.)

Thinking and doing are entirely separate things.

 

Damn. For "below" read "above" and all shall be clear.

I blame it on the Turkish coffee I had at lunch. My eyes are still spinning.

 

Only forego the current divy, receive the subsequent divies on the shares from the SPP.

 

Ah, I see. My mistake.

My way of thinking was, say, 5,000 shares + 3,480 shares versus 5,000 shares only ($826 v $487 @ 9.75c ff then $848 v $500 @ 10c ff. Total $1,674 v $987 = $687 difference.) I think

 

Home brew time.

 

I started my SMSF in May '17 and only invested in LIC's.

Now in the pension phase and with the possibility of losing access to franking credits I looked at alternatives to avoid franking credits but still invest only in LIC's.

I began this in May '18 and have been happy with the results to date.

 

Beware the “fiddle”.

 

Just when I thought the thread was nicely concluded, it keeps going! To 111 posts, PC will need a bigger server if this happens for every SPP!

 

Please explain?

 

You'll all be relieved to know I took the Thornhill medicine and have left WHF right where it was!

 

Yeah but I cannot be fussed fixing the obvious error. I've had too little of the devil's water to even be bothered to care.

 

If you don't participate in the SPP your existing allotment is diluted 100% of the figure @dunno posted. As you SPP more shares you are decreasing the dilution of your existing holding by buying the cheaper ones.

However, as a shareholder, if you want to continue accumulating WHF and don't try to time the market, theoretically you should be all in as long as the price of WHF at the last minute before the SPP closes is higher than the SPP price, as per @Nodrog's plan.

You wouldn't not participate because you have a LOT of WHF and couldn't completely make up for the dilution, you can make up at least SOME of the dilution.

The point @dunno makes I believe is does one want to keep holding a share that is knowingly periodically diluted and by that much? If yes, game theory strategy is SPP full allotment and then sell entire WHF holding the next day or whenever you can sell based on rules.

Either way, the SPP is an arbitrage of sorts. Market could tank the day after so it's not guaranteed.

 

As usual we are over complicating things.
As a long term investor you either accept that you will be diluted at times and believe this won't have a greatly negative effect on returns vs other options (due to out-performance or whatever) or you should invest elsewhere without this risk.

Long term you WILL be diluted as a long term accumulator, accept it or move on.

Using SPPs as an arbitrage is a different kettle of fish IMO.

 

My comments again are not specifically aimed at WHF. They are once again just the example.

What I really wanted to counter is the belief that SPP are universally good (or bad)

If shares are not issued at NTA then a distribution of costs and benefits occur.

Below NTA and existing shares fund the discounts offered to new shares.
Above NTA and existing shares benefit from the premium applied to new shares.

If it’s a “proportional” rights issue – your benefits and costs equal each other regardless of the issue price relationship to NTA

However if it’s a SPP typically your benefit and cost will not match – it depends on the size of your existing holding compared to how many you can buy at the discount. You need to see how much you gain on the new shares and how much you get diluted on the existing ones.

the risks of benefiting from dilution when small is it doesn't take long for the ratio's to switch and you become disadvanatged over the long run by which time capital gains tax considerations locks you into the situation.

If you are not a long term believer, its a better option to start down the path of what you do beleive in long term then try and switch paths later on.

If a company does proceed with a SPP below NTA I can see no reason why everybody does not act to mitigate dilution.

Using WHF as an example. When you don’t want to increase your exposure.

SPP announced 7/11. Current market price between NTA and offer price so some scope to mitigate dilution exists.

7/11 closing price 4.59 Adjusted for dividend 9.75c and franking 4.2c = $4.45.

You have an almost risk-free option to repurchase 3481 shares at 4.31 – (SPP very unlikely to be scaled back) or even below if market falls below that price prior.

Sell 3481 @ 4.59 forego dividend and franking of 13.95c and repurchase @ 4.31 = $492.19 less brokerage of your dilution avoided and monetarised.

 

I am in accumulation phase and would participate, won't take up the full offer