Ex-rights stocks outperform on average

While in other markets stocks go ex-rights overnight, in Iraq things take a bit longer. Generally, trading is suspended prior to shareholders meetings at which rights and bonus issues will be voted on and does not resume for months afterwards. In the case of rights issues, the suspension will last until all the shares on offer are sold—either to existing shareholders or, failing this, via a public offering—or cancelled. And then there are always additional weeks of delay while the new shares are registered with the Iraq Depository Center.

Since the end of May, a number of companies have resumed trading following such months-long suspension periods. (See chart. Dates in parentheses are suspension periods; stock and index returns are for the period indicated, with the stock returns adjusted for the corporate action in question.) Among these names Iraqi Middle East Investment Bank (BIME) came back the fastest with just over two months from the last cum-rights date (May 12) to the first ex-rights date (July 15) while the slowest to return, Al Hilal Industries (IHLI), took almost nine months (from January 5 to September 30). Subscribers to IHLI’s rights issue (1 new share for two old) did the worst, losing 10% of their money; those who took advantage of United Bank for Investment’s (BUND) 38% rights/12% bonus offer did best, making 11.5%.

Existing shareholders who took up their rights broke even on average if you take the simple average of these returns and made 1.4% if you take a market-cap weighted average. These paltry gains seem like a rather meager reward for being stuck in your position for months on end but beat the market’s performance during the suspension periods. The simple average for the market returns was -4.9%; doing the calculation on the same market-cap weighted basis used for the stocks you get -1.5%.

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