Agricultural Development Bank Limited (ADBL) had issued right shares in the ratio 2:1 from Kartik 3 to Mangsir 7, 2073. In this issue period, 1 in 5 shares was not subscribed by the shareholders. ADBL is auctioning these unsold 19,68,575 units right shares to the general public at a premium price. The main question here lies: how much to bid in the ADBL auction?
At more than 19.68 lakh units shares worth more than Rs 19.68 crore in paid up value, this is the largest auction of unclaimed right shares of any company in Nepal. If the recent trend in cutoff prices of unclaimed right shares is taken into account, ADBL is expected to earn a good Rs 40-50 crores+ in premium.
Basis for bidding on unclaimed right shares
Investors interested in acquiring unclaimed shares normally should bid less than the market price. While there are some who might bid above the current market price, sensible investors always bid less than the market price. The logic here is simple: why spend more money in auction when you can get the same number of shares in the stock market for a lower price?
What does the cutoff price trend show?
Bidders typically look at the market price on the second last day of the auction when establishing base for the bid amount per share. Trend shows that the cutoff price is normally 10-20% less than the market price on the last day.
Let’s take a look at the recent auctions:
Cutoff price for development banks are far lower than for commercial banks. This means that interested bidders might get away with bidding more than 20% lower than the last closing price. The highest difference between market price and cutoff price for a commercial bank was for Prime Commercial Bank at 10.66%.
When Machapuchchhre Bank Limited (MBL) auctioned its 2,33,983.79 units ordinary right share to the general public, its cut off stood at Rs 525. The last trading price of Machapuchchhre Bank, a day before the bid opening day stood at Rs 560.
Likewise, Laxmi Bank Limited (LBL) had auctioned its 186,462 units ordinary right shares to the general public. The cut off price for the auction was set at Rs. 477.60 whereas the last trading price, a day before the bid opening day stood at Rs 517. When Sunrise Bank Limited (SRBL) auctioned its 1,66,248 units ordinary shares, the cut off price stood at Rs 426. The last trading price of shares of Sunrise Bank, a day before the bid opening was at Rs 452.
Less than 10% difference between the cutoff price and last traded price is seen in case of commercial banks.
Will the number of shares and maximum limit make a difference?
ADBL is auctioning 19.68 lakh units shares. In a sense, this can be seen as a mini-IPO or mini-FPO. Further, maximum cap of 10,000 units per application has been set for the auction. In the earlier week, the price of ADBL stock was also declining.
How much to bid?
The auction closes on Falgun 12 (February 23, 2017). It will be sensible to bid around 10-15% less than the last traded price of ADBL on Falgun 11. For example, if the closing price of ADBL on Falgun 11 will be Rs 450, it is recommended to bid around Rs 380 to Rs 400. Similarly, if the closing price of ADBL on Falgun 11 will be Rs 400, we can bid around Rs 340 to Rs 360.
