The thing many people don't realise is that they absolutely can participate in a well planned and fairly executed SPP like this one was, with no requirement for additional funding and with zero risk.
When they announced the institutional placement, the advice on the SPP in the announcement was this:
The Retail Entitlement Offer is expected to open on Monday, 24 August 2020 and close at
5.00pm on Monday, 7 September 2020 (unless extended)
Eligible retail shareholders with a registered address in Australia or New Zealand, as at
7.00pm (Sydney time) on Wednesday, 19 August 2020 (“Record Date”) (“Eligible Retail
Shareholders”) will be invited to participate in the Retail Entitlement Offer at the Offer Price.
Eligible Retail Shareholders will be able to subscribe for one New Share for every 7.7 Lynas
shares held as at the Record Date.
So what you could have done is calculated your allocation, lets say you had 500,000 shares, as 500,000 / 7.7 = 64,935 shares
Sell them after the record date - so on 20th August. The SP got as high as $2.56 but lets say you sold at open for $2.50.
After a few days you had $2.50 x 64,935 = $162,337 sitting in your account, no later than 25th August.
Importantly, this was almost a full two weeks beforethe cash you needed to pay for your entitlement was dueBefore the 7th September, all you needed to then do was pay for your entitlement shares at entitlement price of $2.30
Thats $2.30 x 64935 = $149,351.
This is $12,986 less than what you received for selling them. A fair sum to receive when the number of shares in your holding have remained the same, and reasonable compensation for the fact that the SP was dropped due to the dilution.
By not taking action, the SP fell anyway, so the real cost is in doing nothing
Thats why this kind of SPP, where your allocation is according yo your existing holding, is the fairest. For a start, it doesn't allow people with 1 share to apply for $100k worth of discounted shares, like many SPPs do. These ones often get diluted enormously, and you have no idea what number of shares you will receive, or even a minimum number of share you will receive.
But when we are guaranteed a minimum allocation, like we were here, then we can receive our entitlement to not being diluted unfairly when the company we own asks for additional cash. This is as it should be.
I don't at all mean to tell people what to do, its up to each individual. But - it is important that us retailers are aware of this, in order to protect our wealth and our rights as minority owners. We should never be discouraged from participating in discount shares because of uncertainties to our allocation size and the associated cash flows.
Annoyingly, another one of my holdings just did an SPP where you can apply for whatever amount (ie $1k, $2k, $5k, $10k, $30k etc) whatever your present holding. A recent one of these I participated in was diluted by about 80%. Others were undersubscribed. There's no way you can transact in this kind of SPP and guarantee that you retain your holding in this type of plan if you don't happen to have the cash sitting there ready. Very unsatisfactory for retailers.
LYC should be applauded for the fairness of their last CR.
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