CUB-Rights issue- Do it affect market price ?

XUV-500

Well-Known Member
#1
Respected Seniors,
I am small investor and holding a small number of City Union bank CUB.
CUB has come with rights issue which will be offered for 20rs.CMP of CUB is 55 .

Now my question is:
In case of Bonus shares : Lets assume price of equity is 100 and if it declares bons of 1:1, after bonus market price gets adjusted accordingly (which will be around 50).
Or if bonus is in some different ratio, market price of that scrip gets adjusted according to ratio.

1.DO similar thing happen in case of Rights issue also?

2.On 22 nov, there was big gap down opening from 61 to 51 coz of this Rights issue news. Can this move was adjusting price according to rights issue ?( just like it happens with bonus issue)

3. do Size of rights issue have any impact on price ( once the rights shares are allocated) ? If yes, will anybody look in details for CUB ?

4.Shall i opt and bid for extra shares ( other than normal allocated) ?

pls help
 
#2
Will answer all your questions. I myself have a decent qty of CUB and my clients too have it.

Yes, the price of the share is impacted, just like bonus. If you recollect, when news of rights came in the mkt , the price was approximately 55. Ratio was 1 for ever 4 held.

Hence, the benefit for holding 4 shares was Rs 35 which translates into a gain of 9 rs per share
.

Accordingly we saw a fall from 60 to 51 as you rightly said. This is termed as the ex rights price.

PLZ NOTE THAT THIS IS A ROUGH CALCULATION FOR EASY UNDERSTANDING.


Raising of equity (rights or otherwise) dilutes the equity base and is normally not considered to be EPS accretive. (negative). However, all INDIAN banks are raising funds to meet the BASEL 3 capital requirement norms. Hence, this rights offering is extremely positive for the stock.

Look at other banks too that have raised funds too. Eg. Indusind bank which mobilised funds using QIP route recently has retuned in excess of 15% in the last one month.

Answer to your last question. Do apply for additional shares. Its almost certain that you would get them. With the ASBA facility you dont even loose interest in the interim period !! Keep getting saving account interest till the time shares are alloted to you. If they are not, there is no hassle of refund since your bank account will not be debited.

And one more thing - CUB is a prime takeover candidate. L&T has substanital stake in it. With pvt houses coming into banking, enterprises like CUB are likely to be hot property.


Stock Mkt Rocks
 

XUV-500

Well-Known Member
#3
Thanks for that clear and detailed explanation sir.

To trouble you more , just a small query. :)

Is there any upper limit for extra shares one ( i.e. existing shareholder) can apply for?
 
#6
Hey,

Any idea on ktk bank? It has performed much better than cub.

Both r buy back candidates.

So does it make sense to switch from ktk bank to cub ?
 
#7
Ktk bank rumors have been floating of a takeover from icici / axis / hdfc bank.

but all managements have declined the rumor.

Now its a call that one needs to take. The screen is telling you that something is cooking.

A rule i read : buy the rumor sell the fact.

Take your call
 

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