Success of BIMB Restructuring - Minority warrant holders have significant influence??

I am a BIMB warrant holder and keen to know more about the Proposed Restructuring announced recently. 

Firstly, I wanted to evaluate whether my 10 to 15% return within 9 months can materialise?

Secondly, what are the chances I can get even more return eg BIMB offer a more attractive price if the restructuring could not get warrant holders' buy in?

Lastly, if the Scheme of Arrangement fails (not buying back all outstanding warrants), what will happen to warrant price?

  

There is a long list of approval required for the Proposal which include BNM, Ministry of Finance, SC, Bursa, shareholders, warrant holders, High Court and creditors. Yes, it needs warrant holders approval ( If I am not wrong, Scheme of Arrangement under S366 of Companies Act requires no less than 75% approval).

Looking at the warrant holders list as at 31/3/2019, Lembaga Tabung Haji & ASB only have 27.54% & 7.02% respectively. Top 30 warrant holders only hold 59.47% of warrant outstanding, so it is rather scattered and many individuals with significant portion appeared on the Top 30 list. So, in order to get majority (75% if I am not wrong), the offer price must be attractive enough. But the challenge of valuing warrant is complicated ( I am not good at Black Scholes Model), hence, what is the fair price then?

In the Announcement under para 4.2, I noted it mentioned the 5-day VWAP of warrant up to Latest Practicable Date (LPD) as at 15 Nov 2019 is 29 sen but Para 2.2.1, the price is fixed at 26 sen being the 5-day VWAP of warrant upto 10 Dec 2019. That is 11.5% down ( I could be looking at 25 to 28% return within 9 months if it is 29 sen....).

For those who bought at higher than the offer price of 26 sen, my bet is they would not vote in favour of the SOA and rather bet for another 3 years plus hoping the warrant price can go higher instead). Of course, it all depend on ones' opportunity cost holding on to the warrant or take the 26 sen.

That probably also explain why some are even selling it for 23sen now or this portion of warrant are just too insignificant to the sellers' portfolio eg few funds on the list or for those who believe they can recycle the capital for higher return than the 10 to 15% within 9 months and of course, those who don't believe SOA will be approved and price will drop further after that.

Yes, looking at the offer price of 26 sen, this SOA may fail and I would not be able to realise my 10 to 15% return within 9 months. Would I suffer huge loss instead?? As the warrant is currently selling at only 11% premium and there is another 4 years to go, I would take my chance. Furthermore, I am sure BIMB has already considered the likelihood it may not get sufficient warrant holders approval at 26 sen offer price. But what is their Plan B to ensure sufficient approval? Started to buy now to gain more control ? Counter offer at higher price***??

Anyway, this is an allocation of my cash reserve for potentially better return, it is not significant and yet, I take it as I do not want to miss an opportunity that is reasonably certain.

Or we may be able to demand for more by writing to them prior to the meeting....hahaha.

Please do your own evaluation before buying even if you agree with my view.   

*** Final Offer Price under restructuring - 38 sen

Potentially Better yield than FD - would you take it??

I have taken more prudent approach in 2019 in view of the higher uncertainty on US China trade war, Hong Kong protest, anticipated economic slowdown, bull run for more than 10 years in US. I have stayed between 50 to 60% invested through out the year and allocated more towards dividend stocks including S-Reits while maintaining a high cash level.
Yes, there is always opportunity cost in holding cash, especially when there were opportunities to buy good stocks at dirt cheap but I did not act on it. I missed the plantation stocks rebound though I kept an close eye on a few counters. My only consolation, I managed to catch SOP but have cashed out too early.

Moving into 2020, I probably would stay prudent too but will definitely act if opportunities to buy good stocks at dirt cheap arise. So, I noted there is opportunity to buy into BIMB-W** now that will give 10 to 15% return in approximately  9 months later (highly likely, as always, nothing is guaranteed).  That is a much better yield than all the dividend stocks I am currently holding ( yes, there is opportunity cost here as there may be capital gain for my dividend stocks - again, no guarantee it will be capital gain, it could be loss!!).
If I compare with the yield from Fixed Deposit (cash reserve), 10 to 15% return in 9 months is 3 to 5 times more. Of course, there is a potential opportunity cost if market crash and I can allocate the FD to buy good stocks that are selling cheap instead. For me, the highly likely scenario with 10 to 15% return is just too hard to ignore. What about you??


Hope this provide you with an alternative to your FD in bank too. Happy New Year and happy investing.



** Under the Proposed Restructuring of BIMB, all outstanding warrants shall be bought by company at 26 sen. Should the Proposed Restructuring fail and warrants remain listed, the 10 to 15% return will not materialise. Market price then may be higher or lower. Do take note this is warrant, expiring in Dec 2023.

 

Follow Fund Managers a better investment approach??

Lately I heard some said the best strategy in stock investment is follow the big guys - fund managers. Study the stock pick by fund managers and invest in the same stocks as them could be a better strategy. Well I have reservation on the above approach, not only that, we have to exercise extra care when doing so.

It has been almost 2 years when I first wrote about Lafarge.

Lafarge - mispriced?

I was puzzled for a while when the price continued to scale higher even I thought price then was way above its intrinsic value. Not long later, the price plunge (more than 60%)!! The last few days saw some strong rebound as there are rumuors on revival of mega project, to me, it did not change my view on Lafarge as its financial position as well as cashflow looks real bad. If the only reason to buy is because it has dropped a lot, I think it can drop even further when it turns out -- just rumuors. 

Sometimes overvalued or undervalued  stock can continue to be wrongly priced , more so if they are tightly held by institutional investors until some of them started to accumulate/offload, it will then trigger a spinal effect and its true value will emerge.

Of course Lafarge is an easy pick for obvious case of overvaluation due to its poor financial performance and cashflow. 

There are other bluechips that appeared to have been overpriced for a long period of time. Eg Nestle, DutchLady, QL but their business are highly profitable and with sound financials, they remained overpriced for a long long time.. 

I have no question about the sustainability of its business, quality of its management and financials, however, I am just puzzled on its valuation (whether its PE, PB, P/CF or dividend yield, except their ROE is exceptionally high) on what kind of return could we expect from investing in such overvalued and low yield stocks. Well, institutional investors have a different perspective, firstly they have a really long term holding power, secondly, especially in time of volatility, small return is better than negative return and as long as none of them started to offload ( still not yet), everyone is happy with holding on the 2 to 3 % yield  overly priced bluechips. Well, if one of them start to offload when they realised the market is more stable and they could go for higher yield on undervalued stock, it may be too late for us to sell especially most of them are highly illiquid.  

For me, following the fund managers to invest in these bluechips may not be a wise idea when the stock appears to be over valued. 

Buy and Hold ?? Please perform review regularly

Esprit share price - A picture paints a thousand words

I always use this case to remind myself that don't be over-confident that it can't get worst, especially during this uncertain time.

Esprit, is a international fashion brand (in case some of us do not pay attention to Fashion brand) as well as a bluechip on HKEX that was doing so well in the past. Its share price has gone up from less than HK12 in 2002 to about HK120 in 2007 (about 5 years to be ten bagger). Then when GFC hits in 2008, it had dropped to about HK50. 

When the company performance further deteriorated subsequently, it has dropped to around HK20 and that has caught my attention where a bluechip on HKEX fell close to 80% from its peak. "How much more can it fall" I whispered to myself. Looking at its balance sheet, it still had healthy cash balance and asset backing even though the business was facing very challenging time then. So...I bought on the basis of share price already fell so much for a bluechip, healthy financial position and fashion is cyclical (I thought) at around HK20 in 2010.

One year later it went down ti around HK13 and it started to register loss, and I told myself I must have made a mistake and did not have good knowledge about fashion, so with great pain, I cut loss.

Looking at the current price now (HK1.56), it has dropped more than 80% again. While this may be an exception or unusual event, we have to continue reviewing and assessing the companies we invested. I do agree with the strategy of buy and hold long term, but that does not mean we can just sit back and forget about it. "Do not be over confident" - I keep reminding myself. 

For me, new year marks a new beginnings with hope and wishes, it is also a time for me to review, rethink and refocus... opportunities and threat need to be assessed, not left entirely to "luck" factor. Investing is not gambling though it has the luck factor too.

Wishing all of us a great year in 2019!!