Australian (ASX) Stock Market Forum

Rights issue

Joined
Mar 16, 2012
Posts
176
Reactions
0
Hi guys,

I have a question regarding rights issue.

If a company issues rights to buy stock at say $4.00 and the stock price on the market is $12. Does that mean I can buy a thousand shares at $4.00 and then sell them instantly on the open markets for $12?

Thank you
 

pixel

DIY Trader
Joined
Feb 3, 2010
Posts
5,359
Reactions
330
Hi guys,

I have a question regarding rights issue.

If a company issues rights to buy stock at say $4.00 and the stock price on the market is $12. Does that mean I can buy a thousand shares at $4.00 and then sell them instantly on the open markets for $12?

Thank you

Basically yes.
But you have to wait till the stock has been allocated to you before you can sell it. There usually is a gap of one or two weeks between Close of "application" (i.e. the deadline for your money being received) and issue of new shares.

Rights are nearly always issued to holders of the relevant shares.
Take DYE for example: You had to own DYE at the "Record Date" which was sometime in February, from memory. Then you had the right to apply for up to $15,000 worth of shares at a price of 16.6cps, payable by 31st of May. In early May, the share price rose on the open market to 30, 40, up to 56c. So everybody and his dog would've wanted to join in. (No secret that I did too.)
But here's the catch: Due to the massive oversubscription, the individual allotment was scaled back to 17.8% of what each had applied for, and that was only announced a few days into June. You also received your small parcel in mid-June, and I'm still waiting for a refund cheque returning the 82.2% of my application monies.

So, had you applied for 80,000 new shares and tried to sell them in mid-May, you'd be in a pickle.
But had you been short of cash to exercise the rights, you could have sold just enough existing shares to cover the cost of the new ones.
 
Joined
Mar 16, 2012
Posts
176
Reactions
0
Rights

Hi guys,

Hope you're all good.

I received this letter from my broker and am a little confused on what to do.

If I sell the rights, at what price will I be selling them at? And what exactly are rights? Are they shares?

..................

Dear Sirs



Banco Santander S.A. - Stock Dividend - Your holding of 63 Shares



What is happening?



Banco Santander S.A. recently announced details of a Stock Dividend to Shareholders as at close of business on 12 July 2013 with a cash option, giving you the right to receive additional Shares or a cash payment. As a holder of Banco Santander S.A. Shares in your Hargreaves Lansdown Vantage Fund & Share Account you have been issued with one Right for each Share held at the qualifying time and now have 63 Rights.



What are my choices?



You now have 3 options to consider relating to the Rights and these are explained below in more detail.



Option 1 - Do nothing - DEFAULT. If you do not return an election by the deadline below and take no action you will receive 1 New Banco Santander S.A. Share for every 33 Rights held. The issue of New Ordinary Shares will not be subject to Spanish withholding tax. If you choose this Option you will receive 1 New Ordinary Share(s). Any Rights that are not converted into New Shares i.e. not multiples of 33, will lapse and a cash payment will be made in their place. The New Shares are expected to be issued on an interim line from 6 August 2013; the interim line will convert into Ordinary Shares at a later date.



Option 2 - You can receive a cash payment. If you elect for this option by our 11:00am Tuesday 23 July 2013 deadline you will receive a Sterling cash payment equivalent to the interim dividend of €0.15 per Right. The proceeds will be subject to a 21% Spanish withholding tax. Cash proceeds are expected from 1 August 2013.



PLEASE NOTE THAT IF YOU ELECT FOR CASH AND WISH TO MAKE THIS YOUR DEFAULT INSTRUCTION FOR ALL FUTURE BANCO SANTANDER STOCK DIVIDENDS WITH A CASH OPTION PLEASE INDICATE THIS ON YOUR ELECTION



Option 3 - You can sell your Rights. If you elect for this option by our 4:30pm Tuesday 30 July 2013 deadline you will receive the prevailing market price of the Rights at the time of the sale after deduction of a flat rate £10.00 commission charge. The proceeds of the sale will not be subject to Spanish withholding tax. You can only elect for this option by telephone on 0117 980 9800 or by sending a signed written instruction. You cannot elect for this option online. No guarantee can be given that a market will continue to exist for these Rights until the 4:30pm Tuesday 30 July 2013 deadline. If we are unable to sell your Rights you will receive Shares under the default option (Option 1) instead.
 
Joined
Nov 22, 2010
Posts
3,661
Reactions
8
Re: Rights

... And what exactly are rights? Are they shares? ...

They are not shares, they are a right to buy shares at a pre-set price.
They fall into two main groups:

Definition of 'Renounceable Right'
An offer issued by a corporation to shareholders to purchase more shares of the corporation's stock (usually at a discount). Renounceable rights have a value and can be traded.
Definition of 'Non-Renounceable Rights'
An offer issued by a corporation to shareholders to purchase more shares of the corporation (usually at a discount). Unlike a renounceable right, a non-renounceable right is not transferable, and therefore cannot be bought or sold.
 
Joined
Mar 16, 2012
Posts
176
Reactions
0
Guys,

Does anyone know where I can check the price of rights for banco santender. Can I buy these rights that have been issued from people who have elected to sell them in relation to the above post.

Thanks in advance guys
 

skc

Goldmember
Joined
Aug 12, 2008
Posts
8,277
Reactions
318
Thanks so cynical,

But isn't the rights price different to the share price?

Yes. You can work it out based on the information below...

Option 1 - Do nothing - DEFAULT. If you do not return an election by the deadline below and take no action you will receive 1 New Banco Santander S.A. Share for every 33 Rights held. The issue of New Ordinary Shares will not be subject to Spanish withholding tax. If you choose this Option you will receive 1 New Ordinary Share(s). Any Rights that are not converted into New Shares i.e. not multiples of 33, will lapse and a cash payment will be made in their place. The New Shares are expected to be issued on an interim line from 6 August 2013; the interim line will convert into Ordinary Shares at a later date.

Option 2 - You can receive a cash payment. If you elect for this option by our 11:00am Tuesday 23 July 2013 deadline you will receive a Sterling cash payment equivalent to the interim dividend of €0.15 per Right. The proceeds will be subject to a 21% Spanish withholding tax. Cash proceeds are expected from 1 August 2013.

Given this, all else being equal, the rights "should" trade at the higher of €0.15 or current share price divided by 33. There's probably slight difference due to applicable tax and transaction costs etc.

This may be helpful too.
https://help.stockbrokers.barclays.co.uk/help/event-processing/BancoSan/
 
Joined
Mar 16, 2012
Posts
176
Reactions
0
Current share price is 5.45 Euro

5.45 / 33 = 0.16Euro

So can I buy these rights at 0.16 EURO?

And if I buy them, will they convert into shares?

Are my existing shares going to be diluted?
 
Top