What if . . . : Capital Raisings and (Over) Production

by Sabinna on July 28, 2010

What if you were a large company looking for a capital raising?

You were once amongst one of the first wave of Taiwanese investors getting in on the China action very early on, as it shifted gears on it’s way to becoming the world’s (or US economy’s) primary outsourcing solution. So you are well invested there. What if there was more to be done? The coming Chinese consumer boom will be quite a party.

What if, even in the face of a looming  global downturn and a particularly severe domestic downturn, production quotas for low and mid-end bikes were maintained? You could warehouse the stock both on-site and off-site, no problem there. You might even ensure that dealers were also very well stocked up, so making available more warehouse space.

Your production figures would be maintained, even increased. You might find that your stock price is looking very good. Your current investors would be very happy, not to mention prospective investors. The good news keeps coming, and is released to the market in tantalizing morsels. The stock price is very attractive.

What if there was a capital raising? You’d do very nicely, looking like a great medium to long-term bet for newbies, and reassuring for current investors, perhaps worried by the additional release of shares would put downward pressure on the price.

What if you were watching all this from the retail side? More or less caught up in, and defined by — in various degrees — a Bike 1.0 strategy. You are going to be worried by the medium term outlook. And indeed, many Taiwan retailers are pessimistic out to three years: it will take this long for stockpiles to be run down many of them are saying.

It depends how large this hypothetical stockpile is, and how many other big players are in a similar position. Word is there are large stockpiles of Shimano components involved in this “hypothetical” as well.

As a barometer of where the market is at, it may not be an as accurate gauge as for the share market, but when pessimism is at its highest, it’s usually a sign that recovery is gaining momentum or, at least, things are getting ready to move. Nevertheless, stock price high, investors high. Retail price low, consumers high. Tiny margins on sluggish volumes, retailers left reeling. (That’s almost a haiku).

Rumors, maybe. Still, I can’t help but wonder, what if . . .

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