Company AGMs: Dos and don'ts

[Coattails]

Eventually, it is still a benefit-cost analysis. I am certain when the time arrives for the rights issue, people will question as well. The fact is given the structure of a REIT, where they are almost 'mandated' to distribute back 90% of its net profit, the only way they can acquire assets is either through share placements, rights, or taking on more debts.

Probably the better financing is to use a perpetual bond - in which case, they can choose never to pay back the full nominal debt sum. But I am certain it has its cons too.

Anyway, for Starhill, during the post-AGM discussion, Francis Yeoh did state that chances are very slim for them to win the Toshin appeal. The bottom line is the court thinks Starhill is trying to get the best of both world by securing Toshin as an anchor tenant and thereafter, complaining that their rent is too low.

I agree with you about the cost-benefit analysis part and debt financing being the best option.

However, I am still of the opinion that all else equal, rights issue is a better option than private placement because existing shareholders are given the option to put more funds into the REIT so as to maintain proportionate ownership of the REIT and of future distributed dividends. Private placement robs existing shareholders of this right. In some cases, the rights issued are tradable, and existing shareholders who do not wish to subscribe to more shares can sell their rights to get something back in return for being diluted.

As for the Toshin issue, I came away with a different understanding. My impression is that come Jun 2013, Toshin will be starting a new 12-year lease with Starhill, and the rental rate at that time will be reset closer to prevailing market rate WITHOUT there being any cap on the rate increase.