Schroder Oriental Income Investment Trust

koru

A relative of mine has an investment in Schroder Oriental Income Investment Trust, which has made the following announcement:

The Company intends to raise up to GBP100,000,000 pursuant to:
- a non-pre-emptive placing of C Shares primarily to institutional investors (placing);
- a pre-emptive open offer for subscription of C Shares available to existing Ordinary Shareholders to subscribe 2 C Shares for every 5 Ordinary Shares held by them on 3 May 2013 (open offer);
- and a non-pre-emptive offer for subscription of C Shares, available to retail investors

She has asked me what this means (she does not have a professional adviser) and whether I think she should take up the opportunity to subscribe for these extra C shares under the open offer. I don't really know much about this, so I'm hoping someone can help me (to help her).

The way I look at it the important thing to work out is whether this corporate action is on preferential terms. If not, then no particular reason to increase her holding, unless she would have done so anyway.

As I understand it, these shares are going to be issued in response to the small premium on the share price of the existing shares. (http://www.ftadviser.com/2013/05/10/investments/asia-pacific/schroder-oriental-income-trust-looks-to-raise-m-o6l5Gp8TwdKxHT7nrZWwWJ/article.html) So, for every £100 of underlying investments held by the investment trust, purchasers of the shares of the trust have been willing to pay £102.5, on average over the last year (that is, the average premium has been 2.5%).

What I don't understand is whether these new shares are going to be issued at a price equal to net asset value or at a premium. As long as they are going to be issued at a premium at least as high as applies to the existing shares, it seems to me that this is not particularly an offer on preferential terms, so there is no particular reason to take it up.

I would have thought that the new shares could not be issued on preferential terms, but does anyone know if I am wrong on that?

BLB53

As I understand it, there will be no particular benefit to taking up this offer - the C shares will be issued for 100p and converted to ordinary shares after one month at the prevailing market price/NAV at the time. You may as well just buy the ordinary shares at the market price today if you want them.

The share price has seen a good rise over the past 6 months so I would not think they are under-valued so not worth chasing.

barak

koru wrote: »

.....What I don't understand is whether these new shares are going to be issued at a price equal to net asset value or at a premium. As long as they are going to be issued at a premium at least as high as applies to the existing shares, it seems to me that this is not particularly an offer on preferential terms, so there is no particular reason to take it up.

I would have thought that the new shares could not be issued on preferential terms, but does anyone know if I am wrong on that?

It's not a fantastic offer which shouldn't be missed - but as the conversion will be "based" on the NAV and the shares are currently at a premium, it might be an economical way for existing investors - who want to - to increase their holding. See the prospectus for conversion details.
http://www.schroders.com/uksoif/home/

Don't ask me, though, to forecast exactly what the share price/NAV will be at the time of conversion!

I hold these shares and if I wanted to increase my holding at the moment, I would go for the 'C' share offer.