ABIL rights issue explained

On Friday morning African Investment Bank (ABIL) announced a rights issue, where they would increase their number of shares in issue from 816 million to 1.5 billion. The way the rights issue works is that for every 100 shares that you own by the close of business on the 15 November (next Friday), you will receive the right to buy 84 shares at R8.00. You have three options with the rights, the first option is to buy the rights offer shares for R8.00. The next option is to sell your right/option (n shares) to someone else, and then the third option and the one option that you definitely shouldn't do is to do nothing. If you do nothing, you will not receive the cash for your N shares and you will not receive extra shares.


After the 15th November, your right/option will trade as an N Share on the JSE, where their price will be the difference between the ordinary share price and the N share price. So taking the closing price for Friday, as an example, of R17.00, minus the rights purchase price of R8.00, will give you an N share price of R9.00. You are then able to sell your N shares at R9.00 and take the cash, or you can indicate that you want to take up your rights issue, and then have to make sure that you have enough cash in your account to pay for the extra shares.


After doing all the maths, my opinion is that you have three options going forward, the first being that you put in more cash, and take up your rights. If you do not have spare cash to put in, then I would sell your N shares and then take the proceeds from the sale to buy ordinary shares, and then your last option is to sell your N shares and use the cash for a nice bottle of wine. The option that you take all depends on your view of the company going forward.


For us, we like the management and we like the space that the company operates in, but think that the share price will stay suppressed for as long as there is a negative perception attached to the company. How long is an investor's memory, only time will tell, but over the long run, with their strong management the share price should recover nicely.