Croesus Retail Trust Rights Issue – Land of the Rising Sun?
Another of my holdings issued rights recently, and I’m pleased that I got 70% of the total rights which I applied for. I won’t bore you with the details of how should an investor approach a rights issue, but I would like to say that this is a moderately risky investment in Japan via a REIT.
Strangely I’m surprised that most investors locally have a negative view on rights issue, which I think isn’t that bad – provided that the money raised from the equity market is put to good use, of course. For Croesus, this is understandable, as they require capital to do an acquisition of a retail mall. Perhaps most investors do not know how the rights issue was done, and didn’t take action to find out the reason behind the rights issue.
Additionally, there seems to be a certain bias against companies that are not local big names as well, from what I’ve gathered in attending AGMs and EGMs of my holdings so far. Whether this is due to the fact that local investors had been burnt by the many dubious China companies listed on the local exchange, or the great penny stock crash of 2013, I’m not sure, but I do think that local investors should understand that the equity market carries a certain amount of risk, which isn’t palatable for the 90% of Singaporeans who don’t use the equity market as a financial instrument. Amongst other things like bankruptcy, litigation and share price dilution, one has to also consider the risk which a business carries, such as Noble’s commodities blowup, or SIA’s really bad fuel costs. For Croesus, it would seem that the general sentiment is the fear of another major earthquake in Japan, which could affect it’s dividend yield. However, the risk seems fairly moderate, as usually yields on Japanese REITs are in the ballpark of 2-5%, whereas Croesus is in the ballpark of 9%. Given this unexplained yield spread, one has to wonder if the current price (and TERP, theoretical ex-rights price) of Croesus is underpriced as compared to other Japanese REITs.
Finally, from what I’ve seen in the various AGMs and EGMs so far, most of these investors are actually near retirement or have already retired, and very few “black-haired” people like me take the effort and time to do due diligence for our financial security. Which is scary, because if we do not take steps to secure our financial independence when young, in the future, we may just end up like the “white-haired” people. People close to retirement or have already retired shouldn’t be putting big money into risky financial instruments such as the stock market, in my opinion, and should focus on safer instruments instead, like the Singapore Savings Bonds.