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ANA Increasing Capital - Stocks Dropping  
User currently offlineSenchingo From Germany, joined Oct 2010, 111 posts, RR: 0
Posted (2 years 2 months 2 weeks 3 days 20 hours ago) and read 1844 times:

ANA anounced that a total 914 bio. of fresh stocks shall be disbursed - the exact price is to be published on JUL 18th as stated after the stock market closing of today. This equals a sum of nearly 211 bio. Yen (2,1 bio. €, 2,6 bio. $) which shall be mainly used for investing in the fleet (55x 787 on order).

ANA's stock value dropped to 13.39% (-194 Yen) right after the rumours got public.

About 2/3 of the fresh stocks will be exclusively available for Japanese investors - additionally a "greenshoe option" (option to distribute additional stocks for emission-price) of 86 bio. share certificates was anounced.

Source (only german): http://www.aero.de/news-15374/Geplan...kt-ANA-Aktien-in-den-Sinkflug.html

As i am neither english-native-speaker nor stock-market-pro, maybe some of you could give a hint why a raise of stock shares is directly connected to a drop of the existing value. I guess it's pretty normal if a company raises it's stocks (which are not yet owned/bought) while the existing stock is untouched, the value of that company goes down. For me that naturally means once people/companies buy the stocks, the value of each stock and therefore the companies value will go up again..?

7 replies: All unread, jump to last
 
User currently offlinenorthwest 777 From United States of America, joined Sep 2000, 224 posts, RR: 0
Reply 1, posted (2 years 2 months 2 weeks 3 days 20 hours ago) and read 1778 times:

It's simple. It dilutes the value of the existing holders of each share of stock. A single share is an economic interest in the company. By issuing more shares, they are essentially dividiing the same pie (the company as a whole) into smaller shares. That's the simple answer. Furthermore, depending on the current valuation of the company, i.e. how it trades on a price-to-book ratio for example, it could further harm the existing shareholders if the offering was made at a price that values the company at a number that is less than its equity value alone.

User currently offlinetdscanuck From Canada, joined Jan 2006, 12709 posts, RR: 79
Reply 2, posted (2 years 2 months 2 weeks 3 days 2 hours ago) and read 1387 times:

Quoting Senchingo (Thread starter):
As i am neither english-native-speaker nor stock-market-pro, maybe some of you could give a hint why a raise of stock shares is directly connected to a drop of the existing value.

It's a drop in the price *of the existing public traded stock*, not a drop in company's value. You need to add the value of the shares to be offered onto the public stock value to get the actual value (plus any privately held stock that they may have).

Quoting Senchingo (Thread starter):
I guess it's pretty normal if a company raises it's stocks (which are not yet owned/bought) while the existing stock is untouched, the value of that company goes down.

The public price went down; that's not the same as the company value going down. As northwest777 said, the market is just guestimating a value for the shares that are coming and spreading the current value of the company across more shares (what's already out there and the shares that are coming out).

Tom.


User currently offlineSenchingo From Germany, joined Oct 2010, 111 posts, RR: 0
Reply 3, posted (2 years 2 months 2 weeks 2 days 20 hours ago) and read 1222 times:

Quoting tdscanuck (Reply 2):
The public price went down; that's not the same as the company value going down. As northwest777 said, the market is just guestimating a value for the shares that are coming and spreading the current value of the company across more shares (what's already out there and the shares that are coming out).
Quoting northwest 777 (Reply 1):
By issuing more shares, they are essentially dividiing the same pie (the company as a whole) into smaller shares.

Thanks tdscanuck and northwest 777 for clearing that up. So i guess my "I guess it's pretty normal if a company raises it's stocks (which are not yet owned/bought) while the existing stock is untouched, the value of that company goes down" was more or less correct, just changing the word "value of company" with "value of stocks".
So that means once investors start to buy the shares, both value per stack as well as company value go up?

Next questions:
- Is it uncommon for an airline to take this step? Haven't there been douzens of other airlines raising the amount of stocks?
- Why is NH restricting the option to buy in to Japanese? Shouldn't an international operating airline keep the option open to anyone interested?
- Why does an *anouncement* to raise stocks available already lead to a drop of value right now? Can you compare it to Apple, anouncing that a new Iphone X will be published and stocks are exploding?
- Can alliance or code-share airlines buy into those stocks?


User currently offlinenorthwest 777 From United States of America, joined Sep 2000, 224 posts, RR: 0
Reply 4, posted (2 years 2 months 2 weeks 2 days 20 hours ago) and read 1195 times:

Quoting Senchingo (Reply 3):
Is it uncommon for an airline to take this step? Haven't there been douzens of other airlines raising the amount of stocks?

It's a common corporate practice in general, not just the airline industry. Again though, the success of secondary stock offerings are dependant on what the market is valuing the shares at, at the moment. If the market is valuing the shares of a company at a price that is fairly high, it means the company doesn't have to issue as many shares to receive the same amount of capital as when the market is depressed. Again, that's a very glossed-over, simplifed answer, I admit.

Quoting Senchingo (Reply 3):
Why is NH restricting the option to buy in to Japanese? Shouldn't an international operating airline keep the option open to anyone interested?

This could be due to regulatory reasons more than for any other reason, I'm not sure in this case. Also, floating shares in foreign markets ends up being expensive due to the need to find promoters (investment bankers) for the issue in that country. Different markets have different appetites for investments too.

Quoting Senchingo (Reply 3):
Why does an *anouncement* to raise stocks available already lead to a drop of value right now? Can you compare it to Apple, anouncing that a new Iphone X will be published and stocks are exploding?

As has been mentioned, a secondary offering dilutes current holders. So many current holders, usually the ones who doubt the companies ability to use the raised funds to add to wealth creation in the company, sell-out to avoid further economic dilution. The example with Apple doesn't apply because that is a product offering that has the chance to add economic benefit to current shareholders. A secondary stock offering like this, while it may end up being fruitful over the long-term, is a short-term guarantee to current shareholders that their ownership stakes have just been de-valued. But again, equity raises like this can certainly be beneficial over time though, it just matters how the money is used.

Assuming the market has an appetite for more shares (meaning investment bankers have willing buyers for more shares of the company) stock offerings can be beneifical because it is 'free' (not the best word to use, I admit) whereas floating bonds (meaning debt) can be more expensive and greatly affect a companies credit.

Quoting Senchingo (Reply 3):
Can alliance or code-share airlines buy into those stocks?

In theory anyone can buy up the shares. But as is usually the case, regulatory bodies usually have foreign ownership laws that prohibit another airline from owning too many shares. In the case of Japan, I don't know those laws though.

I hope this helps. Like I say, these are fairly generalized answers, as I haven't looked into this offereing directly.


User currently offlinespacecadet From United States of America, joined exactly 13 years ago today! , 3629 posts, RR: 12
Reply 5, posted (2 years 2 months 2 weeks 2 days 19 hours ago) and read 1171 times:

Quoting Senchingo (Reply 3):
So that means once investors start to buy the shares, both value per stack as well as company value go up?

The price of the stock goes up if there are more people that want to buy than sell. That's not guaranteed when a company dumps a bunch of new shares on the market.

Quoting Senchingo (Reply 3):
Is it uncommon for an airline to take this step? Haven't there been douzens of other airlines raising the amount of stocks?

It's neither uncommon nor common, but it's not generally an advisable step for a company to take, and is usually kind of a desperation move. There are all sorts of ways for companies to raise cash that don't hurt existing investors, and that's what this does, by lowering the value of their shares. Why would a new investor want to invest in a company that does that?

Quoting Senchingo (Reply 3):
Why is NH restricting the option to buy in to Japanese? Shouldn't an international operating airline keep the option open to anyone interested?

This, however, is very common.

Quoting Senchingo (Reply 3):
Why does an *anouncement* to raise stocks available already lead to a drop of value right now?

Because people who currently own the stock want to dump it before their shares are worth even less.

In the end, the total value of the stock out there on the market probably isn't going to change much, which is another reason why this isn't usually a very good move for a company to make. The only difference is that each individual share will be priced lower than it is now. So if you held 100 shares at $100 today, in 2 months, through an intentional act on the part of ANA, those 100 shares might be worth $50 because now there are twice as many shares out there. Obviously, if you knew that was going to happen, wouldn't you want to sell as soon as possible? And if you didn't already own ANA, why would you want to buy those shares?

Think of it this way. Hypothetically, if a company is worth $1 million and there are 1 million shares on the market, each share should theoretically be worth $1. But let's say the company earns $100,000 per year and is growing 10% per year. So investors might look at that and say "we like those earnings and growth rates and think this company will be worth a lot more someday, so we're going to bid up to $20 for that stock on the promise that it will keep growing and making money for us."

But let's say all of a sudden now there are 2 million shares on the market. The company itself is still worth only $1 million - that doesn't change. Everything about the shares, though, is now cut in half, because there are twice as many out there. So now using all the same formulas investors would have used before, they decide that $10 is the maximum they'd bid for that stock instead of $20. The true value of the company is the same - the computed value of the stock has just been cut in half. When a company puts extra stock out there, it's not actually doing anything to raise the value of the company, it's just lowering the value of the stock.

So everyone who was holding it at $20 now has to make a choice, because they basically - through no fault of their own - have overpaid 100% for their stock. Do they get out now and just get whatever money back they can? Or do they hold and hope the stock is eventually worth what they paid for it again?

So you're starting to see part of the predictable selloff while current shareholders can still get most of their money back. You could pretty easily compute what the end price of the stock is going to be if you knew various ratios and you knew how many new shares would be issued - it's probably going to settle at a point where the price/earnings ratio is close to the same as it was before, taking all those new shares into account.



I'm tired of being a wanna-be league bowler. I wanna be a league bowler!
User currently offlineSenchingo From Germany, joined Oct 2010, 111 posts, RR: 0
Reply 6, posted (2 years 2 months 2 weeks 2 days 19 hours ago) and read 1142 times:

Thank you very very much northwest 777 and spacecadet, you clarified a lot of my questions.

Now that i understood that raising the amount of stocks while having the same amount if investors is probably not the smartest move to start, BUT:

Quoting northwest 777 (Reply 4):
Assuming the market has an appetite for more shares (meaning investment bankers have willing buyers for more shares of the company) stock offerings can be beneifical because it is 'free' (not the best word to use, I admit) whereas floating bonds (meaning debt) can be more expensive and greatly affect a companies credit.
Quoting spacecadet (Reply 5):
So you're starting to see part of the predictable selloff while current shareholders can still get most of their money back. You could pretty easily compute what the end price of the stock is going to be if you knew various ratios and you knew how many new shares would be issued - it's probably going to settle at a point where the price/earnings ratio is close to the same as it was before, taking all those new shares into account.

For me that means this is a long term move. Eventually, it does hurt/scare the investors holding stocks as a natural reaction and make it look like a sell off to some. On the long term, it may be a smart move to lose short term investors but keep and gain long term investors which afterall may raise not only the stock value but finally even the company's value?


User currently offlinenorthwest 777 From United States of America, joined Sep 2000, 224 posts, RR: 0
Reply 7, posted (2 years 2 months 2 weeks 2 days 19 hours ago) and read 1129 times:

It's rarely an ideal move, and in many ways I agree with spacecadet in that it can often be a last ditch move to raise funds, but it can work long term, yes. The most ideal thing of course, would have been for ANA to be able to finance any fleet needs through cash flow. I also agree with spacecadet in that it is, to me personally as an investor, a bit of a mark against management. Management is there to do just that, manage. They are managing the company on behalf of the owners, the shareholders. So when management harms shareholders, it isn't the best of signs.

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