Friday 9 November 2012

Icap 8th AGM - Better not to have bad blood

Just my 2 cents on the board bid by Laxey Partners.

About share buy back...

Those who had attended the previous AGM would probably understand better why share buy back does not work for close end fund after listening to the elaborated presentation by the representative.

Share buy back may reduce the NAV discount in short run as it is NAV accretive.

But what is the fund going to do  when the share buy back hits the 10% limit? As the market becomes aware that the share buy back has hit the limit and no further share buy back is expected, the discount may start to widen again.

What can a close end fund do with its treasury shares?

Sell back in the market will exert down pressure on the share price. NAV discount will widen.

Canceling the treasury share will reduce the fund size and make the trading of the fund more illiquid. Market will price in a discount on the lack of liquidity and the discount is expected to stay long term.

Can the short-sighted Laxey partner really help? The share price of one of their funds has dropped more than 50% since inception and the NAV discount is even wider than that of Icap's! More worrying is that two of their funds are being wound up and those invested since the fund was launched are suffering huge loss!

It is sometimes good to have new blood in and organisation but definitely not bad blood.

Click here to listen to BFM interview with Tan Teng Boo on 9 Nov 2012

No comments:

Post a Comment