Capital Raising

[deadset]

When a stock closes to the market for a day or so, only to reopen at a much lower price a few days later due to the company selling a large amount of stock below the prior closing price.

What's the go with that ? Can shareholders get a look-in ? Is there any notice required or is it just one of those things they can do at any time ?

 

[So_Cynical]

When a stock closes to the market for a day or so, only to reopen at a much lower price a few days later due to the company selling a large amount of stock below the prior closing price.

What's the go with that ? Can shareholders get a look-in ? Is there any notice required or is it just one of those things they can do at any time ?

Assuming u mean issuing new shares...as long as its less than a
certain % of the shares on issue, they can do as they please.

 

[deadset]

It's hard enough guessing what the market is going to do without taking hits like this.

 

[cuttlefish]

deadset - if you follow a stock closely its usually possible to get an idea of their capital situation and whether they are likely to need to raise capital in the near future. One possible telltale sign is having additional capital provisions approved at previous AGM's (though most companies do this as a matter of course anyway).

If its a small company then reading their quarterly cashflow reports should give a good idea.

 

[deadset]

Yes, I got caught out with BSL dropping from $4 to 3, that's 25% in one day after it was already at what I thought was rock bottom.

Did anyone have any news about this beforehand ? I got nothing.

The Westpac capital raising was in the news, I just didn't expect them to do it by undercutting the current price.

These were my 2 largest holdings too.

I suppose it makes sense for them to sell below the current value, as it'd probably overshoot below that anyway if they sold them on the market.

It just doesn't seem fair to not get any warning of these things as its the board decisions which I can't predict.

 

[prawn_86]

The Westpac capital raising was in the news, I just didn't expect them to do it by undercutting the current price.

Capital raisings are virtually always done at a discount to the current price. The reason for this is so there is an incentive to purchase. Why would you buy stock at a higher price then you can get it on market? Or even at the same price when it is likely it will go lower in this climate.

The problem it creats is called stagging, where those that get the capital raising sell their stock for an instant profit, hence pushing the price down to the cap raising price.

If its a public offer, on the day it goes ex, then some people will sell an amount of their stock in order to keep their portfolios balanced, as they will be receiving some more stock in the future when payments are processed. This again creates downward pressure