Sure a CR is a credit raising. That means that the company is...

Sure a CR is a credit raising. That means that the company is looking for extra money and will dilute the company buy selling new shares in the company to do so.

So if a company has say 100 million shares today and the current share price is 20c then they have a market capitalisation or market value of 20 million dollars. If they want to raise say 10 million dollars and someone agrees to buy the new shares at 20c each then afterwards they would have 150 million shares on offer. In theory you would think that seems fine because the company should be worth another 10 million dollars because it now has 10 million extra in cash and so the market value to 30 million and hence the price per share should stay around 20c.

However what happens more than often is that to sell a large number of new shares companies need to offer a discount on the current share price when it does the credit raising to encourage people to purchase them. The discount can be worked out in many ways but often companies will use the opportunity of large price gains achieved through a number of planned to positive annoucements and roadshows to do a CR.

So the price gets pumped up by all the good news and then they do a credit raising at a fairly big discount to the current pumped up price and then things go slow from there. The discounted credit raising and the fact that often most of the nearterm good news is on the table prior to the credit rasing means the price heads south for a while.

Hence my attempted warning yesterday that IMO (and it is only my opinion you need to do your own research everybody) KGL was heading for a CR and a price drop. As I said then I think the calls to buy at around 10c were good and a CR will not be a problem for those who bought in at that and early teens level but at 20c it seemed to be at the peak pre CR.


Now sometimes companies are on a fast track high potential expansion and a small speedhump like a 20% discount for a CR means nothing even in the fairly short timeframe and that may term out to be the case for KGL. Hard to say. Plus if you are buying for the longterm it and you believe in the company it doesn't matter a lot either.