Saturday, March 10, 2012

a question about pnx (10 march 2012)

i just received the following inquiry from a member of the finance manila stock market forum about the possible dilutive effects of the proposed follow on offering by pnx ...

need your expertise
nalilito pa po ako sa FOO. ano difference nya sa 2PO at SRO?
This is dilutive di ba, so negative impact sa market price?

below was my response:

wehehe ... im not an expert and i dont claim to be one ... i only have opinions.

so here is my opinion:

an foo is an offering following an initial offering. in which case both an sro and a 2po are foos.

a 2po is an offering of primary (new) shares. proceeds go to the company.

a 2po maybe:

1. for everybody (public and shareholders ... like an ipo)
2. private placement (waiver of stock rights by shareholders)

an sro could be primary (new) or secondary (treasury shares or selling shareholders).

2pos and sros (primary) are dilutive. all things being equal ... short term ... price theoretically/rationally should go down to maintain the p/e ratio prior to the declaration of the offering. but short term the market is not rational. so who knows how the market would react wrt price: either ...

1. up - market sees new money to be good for expansion long term ...
2. down - market rationally (hurray! :lol: ) adjusts to p/e prior to declaration of offering short term
3. down bigtime - market irrationaly adjusts to old p/e ... short sellers pushing it down more than what is rationally appropriate.

but thats immediate/short term.

long term:

1. new money means company saves on interest they would have to pay had they borrowed money instead
2. new money means expansion
3. new money should translate to higher revenues ... higher profits ... thus p/e adjusts (e goes up... price goes up higher than old price ... p goes back up to reflect old p/e).

with respect to pnx ...

1. divs happen before foo
2. divs mean dividend play prior to exdate
3. div play would weigh more prior to exdate ... price effect of dilution may happen after exdate

as with all opinions ... they could be wrong ... my opinion included :lol:

tnx for ur question. :D

goodtimes! :D