Monday, 7 November 2016

XOX: even more dilution

From The Star "Betting on a big name", some snippets:

Over the week, smallish firm XOX Bhd said it was proposing to issue 250 million new ordinary shares of 10 sen per subscription share to Macquarie Bank Ltd, as part of a fund-raising exercise to boost expansion of its Voopee mobile application.

That’s about 42.03% of the existing issued and paid-up share capital of the company.

“This would allow XOX to preserve cash flow for reinvestment and/or operational purposes; and is an expeditious way of raising funds from the capital market as compared to other forms of fund raising such as a rights issue exercise,” the company said.

On the surface, this begs the question, why would a global bank buy into a small firm? A loss-making one at that.

Investors would do good to not merely chase big names that seemingly emerge in firms.

While it is not impossible for such firms to attract quality investors, sometimes the investments are done on behalf of individuals using the bank as the conduit. If that were the case, then the money is really coming from individuals and not the bank itself.

Sometimes, a good name is all it takes to attract the attention of retail investors looking for a “good” buy. What follows after that is anybody’s guess.

I have written before about XOX, more specifically here:

... current shareholders (who might include loyal shareholders who bought shares of XOX at its IPO price of RM 0.80), who inject further money to subscribe to the rights issue, and who inject even more money to exercise their warrants, will in total only receive 36% of the enlarged shares in the maximum scenario.

And almost all of the dilution due to the restricted issue and SIS will be done at a price that is only a small fraction of the RM 0.80 that shareholders paid at the IPO.

Is this the way the company wants to reward its loyal shareholders?

From the above article it seems that the loyal shareholders are "rewarded" again, this time with a dilution of 42%, again at a fraction of the IPO price.

Next to that is the issue which party is really behind the exercise, is it Macquarie bank, or one of its customers? Surely minority shareholders are entitled to know that.

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