Martin Lee @ Sg
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Lippo Malls Indonesia Retail Trust Arbitrage Strategy

The last time round, it happened with Chartered.

This time round, it is with Lippo Malls Indonesia Retail trust.

In doing a 1-for-1 rights issue to raise almost $300 million, there is such a huge overhang of shares that the price of both Lippo Mall and their Rights have traded down over the past few days.

Investors who have no money to take up their rights issue have to either sell their shares, or sell their rights on the open market.

In today’s trading, the price of the mother share was hovering at $0.36 to $0.38 while the rights share went down to as low as $0.02. About ninety million units  of rights were traded out of the total pool of almost one billion rights.

The market is hardly efficient in the sense that many investors have chosen to sell their rights when it would have made more sense to sell the mother shares.

As each investor is able to convert their rights to the mother share at $0.31, shouldn’t they sell the mother share at $0.36 instead of selling the rights at $0.02 or even $0.026?

Ok, so the mother shares entitles you to a dividend payout of about $0.0106. Let’s analyse the numbers.

At the last closing price, mother share was at $0.365 while the rights was at $0.026.

Revenue from selling mother share at $0.365 and then using the money to subscribe for the rights = $365 – $310 = $55

Revenue from selling rights at $0.026 and getting dividend of $0.0106 = $26 + $10.6 = $36.60

If you are currently holding Lippo Malls, (assuming the price differential stays the same) you should really sell all your Lippo Malls units and buy the corresponding number of Lippo Malls R back from the market place. And then subscribe to the rights.

That is a risk free profit of almost $0.02 per share. Depending on your execution, the bid-offer spread and commission charges, the profit margin might drop to only $0.01+ but even then, it is still pure profit.

Please note that Lippo Malls trade ex-div from Wednesday which means that from the next trading day, the calculations will have to be repeated without factoring in any dividends.

Leave a Comment:

monkey says 8 years ago


Could the follwoing be the reason that its price has been declining steadily?


A BOT Scheme is not registrable with any Indonesian authority. Rights under a BOT Scheme do not amount to a legal title and represent only contractual interests.

LMIR Trust holds some of the Existing Properties (as defined herein) which it cquired at the time of its initial public offering via BOT Schemes. These Existing Properties are

(i) Cibubur Junction,
(ii) The Plaza Semanggi,
(iii) Ekalokasari Plaza,
(iv) Bandung Indah Plaza and
(v) Istana Plaza.

The most recent acquisitions thru its rights issue have very short BOT period:

Pluit Village :
* BOT tenure expiring in 2025

Plaza Medan Fair :
* Operational since 2004 with Build Operate and Transfer (“BOT”) tenure expiring in 2027/28

Is it good?

Blueflame says 8 years ago

Hi Martin,

Sorry, but I’m not sure how does your equation work out:

“Revenue from selling mother share at $0.365 and then using the money to subscribe for the rights = $365 – $310 = $55”

If you sell your shares and subscribe to Rights, wouldn’t you need to buy the Rights first ($0.02 in your case)? This would add to the cost too doesn’t it?

    Martin Lee says 8 years ago

    Dear Blueflame,

    That example is for existing shareholders who own both the mother shares and the rights.

    It’s meant to illustrate that it makes more sense to sell their mother shares than their rights.

    On the other hand, if someone didn’t own either of the two and wanted to gain exposure, it makes more sense for them to buy the R instead of the mother share. So those who bought the mother share were also inefficient.

Noob says 8 years ago

Hey Martin, I would like to ask if one can just buy the rights directly without being a original shareholder of the mother shares?

    Martin Lee says 8 years ago

    Hi Noob,

    You can just buy the counter Lippo Mall R. Today is the last day of trading for it.

Temperament says 8 years ago

Your maths maybe right. If so i am even more puzzle now. All the rights i bought are from DBS VICKERS, KIM ENG, PHILIPS. None from retailers. Or are rights sold by retailers only show the Brokerages they use?

    Martin Lee says 8 years ago

    Dear Termperament,

    They will only show the brokerages.

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