Synthomer (LON: SYNT) shares are down another 4% on the news of the clean up of the rights issue. The underwriters have managed to get those new shares away at the issue price that is. We might suggest that it was only just got away but that’s a matter of opinion, obviously.
We could also note that Synthomer is London’s most shorted stock at present. And now, it’s not about the general collapse of the share price over the past months. That short position has been rising in recent weeks, not falling as people take profits. At which point we’d probably like to be able to explain this. The answer being that the stock placed is probably not very securely placed.
The background at Synthomer: “Now it isn’t true that the shorts are always right. But this seems a reasonably widespread view, across several hedge funds. And a 7.6% aggregate position is large by London standards. At very best we’d have to say that there’s widespread belief that Synthomer is going to get worse, not better.” OK, a general idea that things will get worse, that will depress a share price.
Synthomer share price from Google Finance
The specific announcement today: “....have successfully procured subscribers for all of the 10,319,421 New Ordinary Shares for which valid acceptances were not received, representing approximately 7.4 per cent. of the total number of New Ordinary Shares to be issued pursuant to the fully underwritten Rights Issue, and for all of the 899 Ordinary Shares resulting from the aggregation of fractional entitlements to Consolidated Ordinary Shares, at a price of 200 pence per New Ordinary Share (the "Placing Price").”
7% and change of the rights issue went unsold. The underwriters have - no doubt with a bit of arm twisting - managed to place that rump. OK, but why should that lead to further weakness? Well, consider what happens next. That last, rump, of the issue was pretty grudgingly placed. So, there will be some weak holders there. Any significant rise in the Synthomer share price will likely being met by people taking their turn on those placed rights. That is, any strength in the SYNT share price is going to be met by selling - significantly reducing that short to medium term strength opportunity.
This is just what happens with a rights issue that only just got away - it casts a pall over the share price for some time to come.
