Spark's share purchase plan
Recommendation
In Spark buys stake in DUET from 20 May 14 (Hold – $1.88) we explained that Spark Infrastructure had bought derivative contracts giving the electricity distributor a 14.1% stake in rival Duet Group. Sparks’ original announcement said the purchase would be funded by a $200m equity raising that was only open to institutional shareholders, in turn diluting everyone else.
‘[I]n the interests of fairness and consistency’, the board is now extending the offer to ordinary shareholders to raise an additional $40m for ‘general corporate purposes’. It sounds airy fairy but Spark is always in need of capital so at least the recent run up in the share price reduces the dilutionary impact on those that don't participate.
Eligible shareholders can purchase up to 8,500 stapled securities at $1.76 per share that will be entitled to the upcoming interim dividend of 5.75 cents, for a yield of 6.2%. The offer price isn't that far from the Sell price in the recommendation guide, so we're quite agnostic on whether to participate. Even if you don't want to increase your holding you can potentially earn an arbitrage profit (see How to profit from a share purchase plan).
It’s possible to subscribe to the offer at $1.76 and then sell an equal number of securities on the open market at the current price of $1.80. Across 8,500 securities, that’s a few hundred dollars for 10 minutes work.
There is a risk, though. The offer is capped at $40m, so if it’s oversubscribed Spark will scale back applications and you may not receive the full number of securities you applied for (you’re only guaranteed to receive at least 1,000). The offer closes on 24 June 2014 and Spark’s share price is down 4% since 20 May 14 (Hold – $1.88). HOLD.