I watched by the sidelines as the market rejoiced at the news of the Genting rights issue. As you might know, Genting proposed a rights issue to raise $1.63 billion and existing shareholders will be given the right to subscribe to a single rights share for every 5 existing Genting shares that they are holding.Now, in the first place, a rights issue is not good news to me since there are other ways of obtaining capital without penalizing its shareholders. Shareholders will either have their current shareholdings being diluted or they will have to fork out funds to avoid dilution. Besides, it makes no sense for a company to have a rights issue when stock prices are depressed as it will be able to raise a much higher amount of capital during times when stock prices are buoyant without diluting the holdings of its shareholders. Given that interest rates are pretty low now, it makes you wonder why does Genting choose not to raise capital by taking up loans from banks unless the reason is that its financials are too weak to convince the banks to dish out any funds.
I have talked about why a rights issue is deemed to be not good generally. What about the reasons why the market seems to be euphoric over this matter ?
The reasons are pretty easy to find out actually. All you have to do is to ask anyone around what is their opinion about the prospects of Genting and the upcoming integrated resorts in Singapore. What they will probably tell you is that the prospects will be excellent since the IRs will be drawing a lot of people and the casino business will rake in huge profits for Genting. And these are assumptions made by the market in general.
Do note that the reasons above for the excellent prospects of Genting are all forecasts that are made presently and forecasts are events in the future that may not come true. However, the market seems to be assuming that these forecasts will definitely come true. Facts such as the huge construction loan taken for the IRs and the weak ability of the company to finance loans through its operations seems to be ignored by the market.
Given all the above reasons I have stated above, it really makes one wonder why is the stock price of Genting still heading up north ?
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Firstly, who care if the market is crazy? Just ride it and make your dough. Everyday, I read commentaries about the Sucker Rally in this Bear market. Meanwhile, the train keeps chugging along. Just make sure to jump off as soon as it stall, and don't get caught in the wreck which ensued.
ReplyDeleteSecondly, the Gahmen has a huge stake in making sure the IRs do not fail. On the surface, they looked like pure commercial ventures. But don't underestimate the the face-saving rescue could come into play.
Hi,
ReplyDeleteIt depends on how you ride it. I like to think of it as a game of musical chairs. As long as the music keeps on playing, it will be alright. But no one will know when will the music stops. And when it stops, one better hope that he is still sitting on a chair.
Whether it is a false rally in this bear market is not of any importance to me since I buy on the basis of valuation. If something out there is of fantastic quality and is selling cheaply, you can be sure that I will snap it up.
I have little doubt that the government will let the IRs fail. But I don't wish to invest in something just because it cannot fail. A company can be unprofitable but yet it still will not fail. Chartered is a good example of a company that is backed by the government that has been not profitable and has been destroying shareholder's value year after year.
Kay
so what's you call? hold, buy or sell?
ReplyDeletecheers ..
Since my nick is Musicwhiz, I guess I control when the music stops playing for Genting. Haha !
ReplyDeletehey juz passing by and thought of sharing a comment, about your adsense placement. think you should remove the top banner. banner adsense ads earn very little from my experience. instead place one 336 block within your post, either under the post title or just before your comments block. also try to maximise by adding adsense links (up to 3), with one just under your category bar. also include a google search box. :)
ReplyDeleteHi Weng,
ReplyDeleteIt depends on your objective. If you wish to make a quick buck, I have no advice since the market can turn into any directions without anyone knowing. If you wish to hold this for a few years, it will depend on how well Genting will perform but for now, I would say it is not a good company to invest in.
Kay
Hi Musicwhiz,
ReplyDeleteHaha. That's a good one. In that case, you must be raking in profits from Genting already.
Kay
Hi wayangtimes,
ReplyDeleteThanks for the suggestions. I will try it when I'm more free.
Kay
There are forces driving market prices beyond fundamental data. This stock has been very bullish recently, in line with the general bullishness of the stock mkt.
ReplyDeleteSingapore Stock Screen