Cathay Pacific’s rights-issue entitlements discounted as minority shareholders get cold feet on industry outlook
- Entitlements to subscribe for Cathay Pacific’s cash call traded at 17 per cent discount to value on first day of trading
- A third wave of coronavirus infections is further clouding efforts to revive the business amid warning of deeper losses
Nil-paid rights, as the entitlements are called, fetched 73 HK cents on Friday, the first day of trading, representing a 17 per cent discount to their so-called intrinsic value of 88 HK cents. The value is derived from the gap between rights issue at HK$4.68 per share and stock closing price of HK$5.56 on Friday.
As Cathay’s major shareholders have given their undertaking to subscribe for their entitlements in the HK$11.7 billion cash call, it can be assumed that the volume that changed hands on Friday came from shareholders who own about 15 per cent of the carrier. They can ‘detach’ and sell the entitlements if they choose not to support the airline’s capital injection.
“A discount means that investors hold a bearish outlook towards the company, and this keeps a lid on the demand for its nil-paid rights trading on the stock exchange,” said Alvin Cheung, an associate director at Prudential Brokerage.
Nil-paid rights should in theory track closely with the issuer’s stock price after adjusting for the rights subscription price. It is an instrument that enables its holder to participate in a company’s cash call by buying new shares at the rights subscription price if he opts to exercise the rights.