INVESTMENT cycles are really quite unbelievable, especially the way the man in the street - the retail investor, if you will - conspires to enter and exit the market at exactly the wrong time.
I have been looking at a number of the rescue rights issues, which are increasingly prevalent among small cap companies that listed between 2006 and 2008.
One things that stands out is that directors or founding shareholders (and in some instances, corporate advisers) seem dead keen to underwrite these desperate endeavours.
Gut feeling is that after the rights issues are completed, one will find that the underwriters picked up great swathes of shares not subscribed for by ordinary shareholders.
The fact that a number of these rights issues appear to be pitched at very attractive prices seems to be lost on ordinary investors, who presumably hold the view that it's best to stay away from trouble.
One also has to recognise that many ordinary investors are simply hard-pressed to make investments - especially in troubled companies. Obviously one thinks twice about a high risk flutter on the JSE when faced with the prospect of retrenchment, having a bonus cut, commissions slashed and not being able to find an abundance of loan funding.
The irony, of course, is that these same masses only a few years ago were prepared to pay a steep premium to buy into almost any new listing that came enthusiastically skipping towards the JSE.
But I imagine it's not easy to scan the wreckage some companies try passing off as financial statements and then get too enthusiastic about turnaround prospects. We all know the saying about throwing good money after bad.
With this in mind, I reckon it's safe to assume that companies undertaking these desperate rescue rights offers could end up with scant minority shareholder participation.
This may see a situation where directors and related parties own between 70% to 90% of a company's issued share capital. If turnaround efforts drag on (as they inevitably do when macro-economic conditions are at best dour), the prospect of a delisting raises its ugly head.
I noticed that less than 60% of shareholders in blemished beauty products group Skinwell (formerly Placecol) clawed back their rights in a recent fund-raising exercise. This despite the fact that new Skinwell shares were pitched at 5 cents per share in the ratio of 140 new shares for every 100 held.
I am morbidly fascinated to see what will transpire in the R30m to R35m rights issue for debt-laden construction group WG Wearne, which is contemplating a rights offer underwritten by major shareholders.
The value of the rights issue represents around a third of Wearne's current market capitalisation. If minority shareholders don't turn up in droves to support the rights issue, the founding shareholders are going to end up holding a seriously dominant slice of this business again.
Wearne - depending on how attractively it pitches its rights offer - could end up issuing between 80 million to 100 million new shares. Major shareholders, ie the Wearne family, could end up underwriting the bulk of these new shares, which obviously tightens control on the company.
It's not difficult to take this scenario to its logical conclusion.
I reckon we will soon see numerous situations on the JSE where the self-same parties that raised a chunk of capital (and perhaps even realised a profit) by bringing a business to market in the good times will have an opportunity to buy back "their" business for a song.
Bludgeoned minorities will probably be glad to take any premium on the market price, and before you know it a delistings boom will be in full swing.
It's happened before - and I have little doubt it could happen again.
Paladin gets its fix
This week saw PSG-controlled investment group Paladin making another move on scaffolding and human resources business Top Fix.
On Monday Fin24 reported a sizeable bookover deal of about 8 million shares, which we suspected was the work of Paladin. On Wednesday the transaction was confirmed.
By my calculations Paladin now holds about 23% of Top Fix, which recently detailed some rather big contracts in Richards Bay.
I suspect Paladin - which picked up a few more Top Fix shares on Wednesday - will keep accumulating up Top Fix stock, perhaps looking to build a stake just under 35% (so as not to trigger a mandatory offer to minorities). One has to presume Paladin sees good value at current levels, which makes Top Fix a small cap worth watching.
Considering developments at Top Fix, I'm intrigued to know whether Paladin will seek to bolster its stake in other listed companies where it only holds a small strategic stake.
Here I am thinking specifically of Paladin's 9.4% in under-rated (and overlooked) mining group Petmin.
SunAir: what gives?
Sorry, but I really don't know what is going on at SunAir as regards that company's grandiose plans to list on the Frankfurt Stock Exchange.
Quite a few shareholders, aviation nuts and interested parties have enquired recently about developments at SunAir, which was set to list on the Deutsche bourse in early July.
SunAir's website still displays an apologetic note - dated July 1 - about the mooted listing. SunAir directors seem disinclined to respond to my email enquiries, and the chaps at the Frankfurt Exchange have long ago politely suggested I stop bothering them about the matter.
Considering SunAir still has not issued its shareholders with audited financial statements, I think it's fairly easy to make a deduction about the chances of the company listing any time soon (if ever).
- Fin24.com