I am experiencing my first Rights Issue with Capital Commercial Trust soon, and have scouted around the financial blogsophere for information on how to do this properly.
This post is not meant to address the specifics of CCT rights issue, but more a general guide on how rights work and how to apply for it.
Credits mainly to BullyTheBear, with bits and pieces of information from other sources.
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1. Rights Issue Announcement
With rights issue announcement, the most important is the "X rights per Y shares at Z price" information. Upon the subscription of rights, the nil paid rights (named because you have not subscribed to it; you are just holding the rights) will convert to ordinary shares / paid rights.
4 Choices when right issue happen:
1. Sell your shares before the "ex-rights" date. (Before this date, all shares will include the value of the rights)
2. Subscribe. Otherwise, you risk facing dilution.
3. Sell Your Nil-Paid Rights (or buy more) during rights trading period. (Usually complicated and not worth the effort. Pay commission + short trading period)
4. Do nothing. (Worst option. Wasting money.)
If you want to subscribe, you have until the "Close of Rights Issue" date to press at the ATM.
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2. Rights Trading
With "renounceable" rights, you can sell them off. For "non-renounceable" (also known as preferential offering), you can't. What price to pay for the rights?
This is for if you really want to do trading for the rights,
Nil paid rights price + Subscription price = Price of mother shares after XR
"The subscription price for this cct rights exercise is 1.363. Let's say upon XR, the price of cct mother share is at 1.450. The nil paid rights price should be trading at 0.087 (1.45 - 1.363). If the price of the nil paid rights is way below 0.087, then the logical question to ask if this: is the mother share overvalued or the nil paid rights undervalued? It presents an arbitrage opportunity here. But this is advanced technique to play with rights, and it's highly advisable for newbies not to do it unless you know what you're getting into."
*These rights would actually appear on your CDP account.
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3. Entitled Rights
You can find this by calculating from how many shares you have.
If you don't want to calculate manually, or want to confirm, wait for the Offer information statement (OIS) to be sent to you. In it, there'll be a circular on the whys of the rights exercise, and the how to the different scenario where a shareholder can subscribe to the rights. Most important, there will be a form where they will tell you explicitly how much rights you are entitled to. You can either fill the form, send a cheque and post it to them for rights subscription, or just ignore the form and go to the atm to subscribe for the rights.
Take note of the "Last date and time for acceptance" in the document. You MUST subscribe or they will expire worthless by this date.
You will get fractional allotments of rights, but rounded down. For example, if the right issue is 50 for every 1000 shares, you will still be allocated 25 rights if you have 500 shares.
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4. Excess Rights
You can also subscribe to excess rights above and beyond your entitled rights.
For example, if you are entitled to 830 rights, you will definitely be able to get 830 new shares, because well, that's your entitlement. But for the excess rights, preference will be given to round off odd lots and the rest is luck.
So, if you apply for 70 excess, you will likely get it (to round off to the 100/share lot size).
How much to apply the maximize?
Suggestion is to just put 1.0 your holdings before XR. It's unlikely you will get excess rights beyond the number of shares you hold originally, especially for a good company rights issue.
Let's say you have 5000 shares and are entitled to 830 shares. You can just apply 5000 - 830 = 4170 excess rights. In total you are applying for 5000 rights (830 entitled and 4170 excess) and you would have to pay for it. The rest will be refunded to your account.
Link to step by step guide on using ocbc atm to subscribe for rights:
here
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5. Check Allocated Rights
Date is listed as expected date of crediting rights units, usually 1 day before commencement of trading for rights share. You can check the CDP account around night time to ensure that the rights shares are credited. If that's slow, try checking the refund in the bank account where you applied for the rights. From the amount of money refunded to you, you can back calculate to see how much excess rights you got. The slowest confirmation is after a few days, you will get a snail mail of the rights shares you get through your physical mail box.
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6. Pro Forma Figures
The Pro Forma Figures is a set of important figures that are usually presented in the circulars about the rights issue. The pro forma figures are estimated values of important financial figures such as yield, gearing, NAV, revenue, net profit, etc, assuming the rights issue has been carried out at an earlier date, usually 1 year or 6 months ago.
The past financial figures will be adjusted accordingly to factor in the effect of the rights issue. It will factor in the reduction in interest payment for debts if the funds raised has been used to pay up loans. If the rights issue comes together with proposed acquisitions of new properties, then the increase in distributable income from these new properties will be factored in. Most importantly, the increase in total outstanding shares will be factored in when calculating the figures such as yield and NAV.
The pro forma figures is an important set of figures to look at if you want to estimate the diluting effect of the rights issue. The yield may decrease in the short term due to the increase in the share base, but the pro forma figures will give an idea of yield in the middle to long term after factoring in payment of debts and income from new acquisitions. However, do take note that these are estimated figures, and the actual figures may turn out better or worse.
