Background

The ex-date for Allianz's Rights Issue of Irredeemable Convertible Preference Shares (ICPS) was on July 5. The basis for the Rights Issue is 125 new ICPS for every 100 ordinary shares owned. The main terms of the Rights Issue are:

1. Subscription Price: RM3.18
2. Tenure: Perpetual
3. Conversion Price: 1 ordinary share for each ICPS surrendered
4. Conversion Period: 12 months after the listing of ICPS
5. Dividend Rate: 1.2 times the Dividend Rate of the ordinary share

From the above terms, you can see that ICPS may be preferred over the ordinary share as it carries a higher dividend rate. For more, go here.

Computation of Allianz's Theoretical ex-Rights Price

Allianz closed at RM4.65 on the last cum-date (July 5). If we assume that the ICPS is the same as the ordinary share, Allianz's Theoretical ex-Rights Price can be calculated as follows:
= [(cum-date Price X 1) + (Subscription Price x 1.25)] / 2.25
= [ (4.65 x 1) + (3.18 x 1.25)] / 2.25
= 3.83

What's a good price to purchase Allianz's ICPS Rights?

Assuming the ICPS has the same value as the ordinary share , the value of Allianz's ICPS Rights (Code: ALLIANZ-PR) can be computed by deducting the Subscription Price from Allianz's share price (closed at RM3.68 at the end of the morning session). It would be about 50 sen. ALLIANZ-PR closed at 40 sen at the end of the morning session.

Conclusion

Based on the above, ALLIANZ-PR may represent a cheaper route for getting into Allianz. Buy the Rights; subscribe for ICPS; and convert into the share after one year holding period.


Chart : Allianz's daily chart (with unadjusted price data) as at July 9, 2010_12.00am (Source: Quickchart)