MSB cash burn, page-6

I think you misunderstand.

Your discussion above assumes:

1. that any capital raising will be done at or around the last traded price, and
2. that you will have the right to participate in such a capital raising exercise (either by exercising your right(s) or by selling them)

If that was the case, then fantastic.
That is eminently fair and reasonable, and it is exactly this that I am stridently advocating.


However, that is not what happens during selective placements of shares.

Which is the subject of my “tirade”.

My tirade is that, in selective placements, new stock gets placed:

1. at some or other discount not only to the last traded price (which is a furphy, anyway because the real way to look at the discount is to compare it to the volume-weighted average price (VWAP) over some reasonable preceding timeframe, such as 30-days), and
2. selectively without minority shareholders having the right to participate.

So, yes, minority shareholders can indeed “increase (our) holding on market any day if we agree with market valuation”, but it cannot be done at a discount to market valuation, which is what gets offered – inequitably, any sane person would argue - to others via the selective share placement process.

Despite my “talent for making things unnecessarily complicated”, I like to think that it is the exact opposite of complicated to be able to see what is reasonable and fair, as opposed to what is an egregious abuse of small and loyal shareholders.


As for your example related to the recent CGF raising, comparing the current share price and the issue price for the recent placement, you are right it is not a fair comparison. For starters, I’m not sure what purposes is served by comparing the CGF placement price two months ago with the share price today.

The salient information is: that placement was done at a 5.3% discount to Last Traded Price, and at a 6.1% discount to 30-Day VWAP.

What the CGF share price has done subsequent to the capital raising is completely academic in terms of the discussion about the transfer of value, at a particular point in time, from minority shareholders - denied the right to purchase shares at a discount to market value - to institutional investors who have been afforded that right for free.

Also, CGF is a $4bn company and it was raising $250m (a small quantum in the context of its market value at the time), and still it needed to offer a 5%-6% discount to entice investors.

I think it is safe to assume that the discount required for MSB’s investment bankers to successfully complete a capital raising will, too, be at some reasonable discount to the current share price.

(And if MSB wanted to do anything approaching a 1-for-1 raising, I can assure you that pricing of the book would clear at a level significantly below the current share price, but I know you were just talking hypothetically in that case)


Finally, thanks for proffering your opinion about my “not really belonging in higher risk stocks.”

My observations are that I, in fact, do very well out of stocks which are deemed conventionally to be “higher risk”.

And I am sure I will one day do well out of MSB, too.
Just not yet.
Not until I have worked out what the potential further downside is.