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Monday, February 8, 2010

Corporate action opportunities

I added following companies in last two weeks to my portfolio as part of corporate action opportunities. Both companies have not announced record dates. As discussed in earlier posts, I have allocated a small portion of my portfolio for arbitrage/corporate action opportunities. There are no guaranteed returns on these types of opportunities.

After the bonus and splits, the prices are suppose adjust exactly to reflect the added shares. But in reality, there are chances of that not happening and price will get adjusted, but not to exact same value as it should be. And sure, there are chances that this does not happen in which case this could transaction could generate 0 profit or even loss. I discussed few opportunities which worked out well in the past includng Federal Bank, Adlabs, TRF etc.

Current Price: Rs. 400/-
After 1:1 split, it should quote at Rs. 200/
But there are chances price will be quote at Rs. 220/
which provides a gain of Rs. 20/share and since the share number doubled, that is a return of Rs. 40/ (10%) per original shares purchased.

Basically, we are trying to make use of any inefficiencies which may exists in the market.

I don't invest in all the corporate actions announced, rather only in companies which i feel comfortable enough holding a longer if the opportunity didn't work out as expected. I am looking at Sterlite Technologies in detail to see if I can add it for long term.

1. Sterlite Technologies "Sterlite Technologies Limited has informed the Exchange that the Board of Directors of the Company at its meeting held on January 18, 2010 approved, subject to the approval of shareholders : (1) Stock spilt by way of sub-division of the Equity Shares of the Company of the face value of Rs.5/- (Rupees Five) each to the face value of Rs.2/- (Rupees Two) each. (2) Issue of Bonus Shares in the ratio of 1:1 to the shareholders of the Company and to the existing warrant holders (subject to conversion of Warrants in fully paid equity shares)"
Board of Directors: Approved
Shareholders: Feb/25/2010
Record Date: Mar/10/2010

2. IVRCL. "IVRCL which came out with results on January 28th 2010 has also approved the Bonus issue it has planned, they have announces Bonus Issue in the rate of 1 stock for every stock held on the record date, the record date for the same will be announced later"
Board of Directors: Approved
Shareholder: Mar/8/2010
Record Date: NA

I will try to post updates as transaction progresses and also once the transaction completes with details on how it worked out.