Let me share some background info:
1. On 4th February 2009, IOI Corp issues a Voluntary Take-Over Offer to take over IOI Properties at:
- 0.6 shares of IOI Corp , and RM 0.33 CASH for every 1 share of IOI Properties.
Full Details of the offer is here.
2. Then, on 30th March 2009, IOI Corp have already received (plus their own ownership in IOI Properties) in excess of 90% of the shares outstanding. Since they own more than 90%, the remaining shareholders of IOI Properties are "forced" to convert their shares to IOI Corp at above terms. Full Details of the 90% ownership of IOI Corp is here.
3. By 7th April 2009, IOI Properties would be delisted from Bursa Malaysia, and converted to IOI Corp shares at above terms.
So, the equation below must hold true.
1 IOI Properties share = 0.6 IOI Corp shares + RM 0.33 CASH
If the above equation differs by anything more than the brokerage fees involved (say, 1.5%), then arbitrage opportunity would arise.
As of this writing (4.30 pm on 31st March 2009), you can buy IOI Properties at RM 2.50 per share, and you can sell IOI Corp at RM 3.80 per share. Fitting it to the equation above:
Left Side : 1 IOI Properties share = RM 2.50
Right Side: 0.6 IOI Corp shares + RM 0.33 CASH = RM 2.61
That's a difference of 11 cents, or 4.4% !. Seeing this, I can buy 100,000 shares of IOI Properties at RM 2.50, and "sell" 60,000 shares of IOI Corp at the same time.
This way, i'm making a nearly risk free return of at least 3.4% in a week (that's the holding period for my IOI Properties shares to be converted to IOI Corp shares). After my IOI Properties shares is being converted to IOI Corp shares, i'll "return" the IOI Corp shares back to cover my short selling position.
Nice Arbitrage Opportunity? Too bad Short selling is not allowed in Malaysia since 1998. :-(.
However, if you own IOI Corp shares, you can sell those shares, and buy IOI Properties shares (with the above proportion). 1 week later, you'll have back the same number of IOI shares, and make at least 3.4% profit (assuming total brokerage fee is 1% both sides).
I know i would do that if i manage a portfolio of a few hundred Millions like a mutual fund. :-).
Would i just buy IOI Properties (without short selling IOI Corp at the same time), in the hope that i can sell IOI Corp shares at that above price 1 week later to make 3.4% profit?.
No, i won't. That involves risk, and possibly i might lose money. To me, this way is Speculation (and not Investing). Read the difference between Investing and Speculating here.
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2 comments:
I've got to know this blog of yours from somewhere I couldn't remember. I think when I was searching for Peter Lim of Singapore during the Liverpool takeover rumour.
I appreciate the work you've done as a whole. It's just a pity this blog is being abandoned.
If you read this msg of mine, I hope you can continue.
I've the same direction as yours. That is, stock investing based on value approach. Not many is doing it and I'm frustrated to know most if not all of my friends are actually following trends. In Indonesia, the trends are always shares lile BUMI, BNBR, ANTM. Those kind of companies won't do anything good unless you are a trader and the most successful trader might be the one in the book who committed suicide.
Reply to this comment if you read me. thanks.
Hello Harry,
Thanks for your feedback. The blog is not dead, though i rarely update it.
I update it when
1) I have something to that bothers me (to express out), and
2) I have time for it, and
3) I have the mood to write it (since i don't get any monetary gains from it).
I can understand your frustration as i used to have this too. But nowadays, i look at it from a different perspective.
You see, for an investor to buy it cheap, someone have to sell it cheap. And the less people employing Value Investing approach, the better for the person who practices it.
Take gambling for instance. Instead of advising people not to gamble (and making them hate me), i kept quiet (if they don't ask for my opinion/advice), and thank them in my heart, for their money goes to the owners of casino, which i might own the shares of the company.
It sounds crude, but that's the way i appease myself and sincerely hope that they'll stop gambling one day.
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