Ascott REIT and AsiaPhos Rights Issue – The Pauper and The Prince

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My humble apologies dear readers, as I was really caught up with work till date. There wasn’t much time for me to put my thoughts onto “paper”, so finally here is my quick write-up of two counters – Ascott REIT and AsiaPhos. Two very different counters, two very different industries, but both have a common goal – raising cash.

For Ascott REIT, the objective was to raise cash for an acquisition in Europe and one in Singapore. While it might be dilutive to existing unitholders, this was an opportune time for me to enter into Ascott REIT by way of the rights issue. In hindsight, it was quite a successful rights issue, as the unit price remained way above the theoretical ex-rights price, and I should have subscribed more. As always, the market behaves strangely sometimes, and this is no exception. Perhaps it’s because of the reputation of its Sponsor (Capitaland), or some other reason, but we can only guess at the reason.

As for the pauper, AsiaPhos, they are a phosphate mining company with assets in China, and through this rights issue, they will be using the proceeds to reduce gearing. Interestingly, the major shareholders have taken an irrevocable undertaking to subscribe to the rights, which is a certain sign of support. Usually, mining companies are unprofitable at the IPO stage, hence the dip in share price – after all, they are looking to raise cash to look for minerals to extract. However, once they’ve struck “gold”, the share price should see an uptick, and if we’re lucky, dividends would be paid out. Shrewd investors would be prudent to avoid IPOs for mining companies without any production and ore reserve figures to show.

While the share price of AsiaPhos has hardly moved in the last few months, I note that the company has slowly but surely started to show positive cashflow. Hopefully – with prudent management – the turning point for this company has begun. While mining for what essentially is fertilizer may not sound as exciting as mining for gold or coal, it is definitely an interesting business to own – but just a small part of it, of course.

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