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Stock Trading - Corporate Actions

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Stock Trading - Corporate Actions

Post by Quibit on Sat Apr 23, 2011 6:50 pm

What is a 'rights issue'?

A company issuing shares in a specific proportion to the existing shareholders of the Company. If you hold shares on the date of the EGM you will be entitled to buy shares at a lower price than the prevailing market price of the company's share. But if you don't want to exercise your rights you can also trade your rights in the market as it goes as a seperate security (denoted by the letter 'R'). All the information regarding the issue will be given out to shareholders by way of a Circular.

I don't have money to exercise my rights. What are my options?

If you don't want to buy shares for the rights you are given you can sell the rights in the market. To do this you have to renounce your rights in favor of the CDS. You will get a form called the 'Form of renunciation to CDS'. Fill this form and hand it over to the CDS. After that you can trade the rights security from the day it starts trading like a normal share (but for a shorter period).

You can also ignore the rights issue which is not recommended because your shareholding in the company will be diluted if you don't subscribe for the rights.

The important dates pertaining to the rights issue will most likely be given in the Circular which will be sent to you if you are entitled for the rights issue. Further, the CSE will also announce the dates in the ATS and also on the website. It always pays to check the announcements regularly!

What are the important dates for a rights issue?

- EGM date
The date on which the shareholders pass the requisite resolutions for the rights issue.
- XR date
The immediate market day following the date of the EGM.
- Date of dispatch of provisional letter of allotment
If you hold shares as at end of trading on the EGM date you will get a provisional letter of allotment giving out your entitlement for the rights. Once you get this letter you can decide either to exercise your rights or to trade your rights.
- Last date of acceptance and payment
The date by when you should complete payment for the rights you are going to exercise.
Period of renunciation

From the date the rights start trading up to the renunciation date you can trade on your rights.

What will happen on the XR date?

XR date is linked to a rights issue. XR date will be the immediate market day following the day on which the shareholders approve the resolution for the rights issue. To be entitled for the rights issue you have to hold shares on the EGM date. If you buy the particular share on the XR date you will not be entitled for the rights issue.

Can I buy additional shares over and above the number of rights allotted to me?
Yes, this would be possible due to some shareholders not exercising their rights. You can fill in the form 'Application for additional shares' and submit it along with the required remittance. But the number of additional shares allotted to you will depend on a scheme proposed by the Directors and approved by the shareholders.

When will I get the shares allotted for my rights?

You have to fill in the required forms and submit it along with the required remittance as explained in the circular. The Company is required to complete the CDS uploads within 12 market days of the last date of acceptance and submit a Declaration to the CSE on the immediately following market day as per CSE Rules. The shares will come in to your account on the following day. So ideally the shares should come in to your account within 14 market days from the 'last date of acceptance and payment'. But this could change because some companies do finish the uploads before 12 market days. So the latest day for the shares to come in to your account would be the 14th market day from the last date of acceptance and payment.

What is a Warrant? Why does it exist?

A warrant is a security which gives the holder the right to buy the shares of a particular company at a pre determined price on a pre determined date. Warrants could be issued by a company as a separate issue or it could be coupled with a rights issue. This security denoted by the letter 'W' could also be traded on the stock exchange. The companies issue warrants to enable them to raise funds in a future date and in the Sri Lankan context mostly as a sweetener for rights issues.

If I hold Warrants in a particular company, what should I do?

You can deposit your warrants in your CDS account and you can trade the warrants up to the date of expiry which would be given in the circular sent to you. If you have warrants as at the expiry date you can excercise these warrants during the exercise period. That is, you can convert the warrants to ordinary shares of the company by paying a sum equal to the exercise value (exercise price into the number of warrants to be exercised) to the registrar to the issue.

What is a Capitalization of reserves?

This is more commonly known as a bonus issue. This is a situation in which you are given shares free of charge in a specific proportion to their current holding. The required funds are taken from the reserves of the Company.

What should I do to get shares in a capitalization of reserves?

If you are a shareholder entitled for the capitalization of reserves you will get a circular setting out all the details. If the company's Articles of Association require shareholder approval to be obtained for the capitalization, the company will hold an Extraordinary General Meeting to obtain same (Remember, to be entitled for the capitalization you should hold shares of that particular company as at end of trading on the EGM date).

If the shareholders approve the particular resolutions, the company is required to complete the direct uploads within 5 market days from and excluding the date of the EGM and submit a Declaration to the CSE on the immediately following market day as per CSE Rules. The shares will be available in your account on the following market day.

What is a share split/sub-division? Is it true that the price goes down immediately after the sub-division?

Share sub-division is when one share of a company is divided in to a higher number in a particular ratio (i.e. 1 share sub-divided into 2 or 1 share sub-divided into 4, etc.). This is done with the purpose of increasing the liquidity and tradability of a share, when the share price of a company is very high. The price of one share after the sub-division will definitely go down but the total value of your shares will remain same because you have more number of shares. Share consolidation is the opposite of this.

What does XC date mean?

XC stands for ex-capitalization. Similar to a rights issue, in the case of a capitalization you should hold shares prior to the XC date (as at end of trading on the EGM date) to be entitled for the capitalization. Buying shares on or after the XC date will not entitle you for the capitalization.

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Re: Stock Trading - Corporate Actions

Post by Kumar on Fri Dec 30, 2011 10:31 pm

Very informatique. Thanks a lot.
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Re: Stock Trading - Corporate Actions

Post by bakapandithaya on Fri Dec 30, 2011 10:47 pm

Thnkx for sharing
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Re: Stock Trading - Corporate Actions

Post by Redbulls on Sat Apr 07, 2012 12:33 pm

Good to know.
Good work.
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Re: Stock Trading - Corporate Actions

Post by nalban on Wed Oct 01, 2014 4:35 pm

Thanks I have gained a lot of knowledge as a new comer by reading these.

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Re: Stock Trading - Corporate Actions

Post by fff4sl on Wed Oct 01, 2014 7:37 pm

Helpful *****
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