abc in afr today, page-9

hergerr i don't think you fully get it mate

the rule of thumb is you issue equity when the sp is high to minimise dilution.

abc has about 500m shares on issue.

to raise $750m they would have to issue 500m shares at $1.50. this would double issued capital.

sure if you take up your full entitlement your percentage holding in the company would be unchanged, but what about the effect on eps and share price.

let's say eps before the rights issue is 40c. with a multiple of 10x, this gives a share price of $4.00

but if you double the number of shares, eps becomes 20c. at 10x, this gives a share price of $2.00

in reality eps would be more than 20c because the $750m would pay down debt and interest would be lower, but the effect on the share price is still destructive.

whoever wrote the afr article was an idiot.

abs is worth at least $3.00 at the moment