Odel creates record; Blue Diamonds destroys value

The biggest news for the week was from Odel, which successfully concluded an IPO, attracting a record breaking 63 times of the capital required. Odel’s Initial Public Offer was for 16.7 million shares at a price of RS 15.00 per share, to raise Rs 250.5 million. Once the final count was done, the share issue had attracted almost 23,000 applications for a total of Rs 16 billion. This was a new record for the stock exchange and for IPO’s, and was indicative of the level of liquidity in the market.
The high level of money flowing into the share market was one of the reasons that speculators threw caution to the wind and chased up Blue Diamonds shares. The voting share of Blue Diamonds which was trading at Rs 2.80 at the beginning of the month, suddenly shot on speculation of takeover and turnaround. It peaked at Rs 9.25 just a day later and settled between Rs 7.00 and Rs 8.00. Blue Diamond’s non- voting shares which were trading at Rs 1.10 on the first of July, shot up to Rs 4.40 and finally settled between Rs 3.50 and Rs 4.00 by the end of last week. On Tuesday evening, the company announced a rights issue at the rate of one for every one held at Rs 2.50 for the voting share and Rs 1.50 for the non-voting share. The company had plans to raise Rs 238 million from the rights issue, to finance its working capital requirements. On Wednesday, the prices of both voting and non-voting shares collapsed as the bets had been placed on wrong information. Warren Buffet is believed to have advised to “Only buy something that you’d be perfectly happy to hold if the market shuts down for 10 years” Obviously many investors in Blue Diamonds found that, as the prices kept coming down, they would not like to hold these shares even for 10 minutes. Even though this kind of blind buying has been the hallmark of the average small investor, this is happening in time when the market is flooded with good companies and undervalued stocks. All it takes is a little financial literacy and a prudent investment approach. Post war Sri Lanka’s corporate sector is an uncut diamond, not a loss making entity.
The overall market declined for the week with the broader market All Shares Index shedding 88 points, or 1.9 percent, to end the week at 4,506. The more sensitive Milanka Price Index lost 116 points, or 2.2 percent, to close at 5,095. Sectors that showed the most declines were footwear and textiles, which was down 10.4% on account of the Generalised System of Preferences Plus (GSP+) trade concession being withdrawn. The investment trusts sector fell by 8%, while banking (-4.3%), Tourism (-3.6%) and Diversified (-2.6%) also showed declines. The motor sector moved up by 14%.
In other corporate news, Forbes Plantations (Pvt) Ltd, which owns Kahawatte Plantations, a listed Regional Plantations Company, sold its rights entitlement of 16.7 million shares to Ceylon Tea Services for Rs 2.00 per right. Ceylon Tea Services will have to pay an additional Rs 15.00 per share to buy the shares of Kahawatte Plantations, which will give it a control of 19.5% of the RPC. MJF Holdings is the ultimate parent of all the above named companies while Ceylon Tea Services is also listed on the CSE.
- Stock Market Correspondent