Wednesday, June 01, 2011

The Insanity Of Asia Media's Private Placement

I just read this absolutely astonishing announcement from Asia Media (Amedia).

It's going to do a 35% Private Placement of new shares!



That's insanity!

Ok, for those who are holding shares in Asia Media. This is what's happening.

Asia Media has a share base of 228 million shares.
A private placement of 35% would see some 79.8 million shares being created.

Which means Asia Media would end up with a share base of 307.8 million shares.

Not sure of the implications?

It's rather simple.

Assume for a moment that Asia Media 'could' earn some 10 million for the fiscal year.

Based on 228 million shares, this would mean an eps of 4.3 sen.

And if you think this stock deservces a fair value PE of 10x, then the fair value price should see the stock valued at 43 sen.

So far, ok?

Now consider this new share base of 307.8 million shares. Now an earnings of 10 million would equate to an eps of only 3.2 sen. And using the same 10x PE multiple, the stock fair value would shrink to just 32 sen!!!!

See how the value shrunk?

I seriously do not understand what's happening. Ok, it's 35% to be allocated to Bumi investors. No problem but why couldn't Asia Media DO THIS PLACEMENT BEFORE LISTING?

Why list and then now only do this private placement?

With a private placement now, all the existing shareholders would see their value shrunk caused by this GODZILLA size private placement!


for the record: back in 2009 : Sanichi's Mind Boggling 44% Private Placement!