Rights issue is one of many events that cause volatility and speculation movement in the market. Usually companies would give a discounted rights issue to shareholders which serves as an incentive for shareholders to purchase the new shares by exercising their rights entitlement. Since its discounted, some of us (like myself) would want to snatch up more shares hence more rights entitlement. However we should all understand the process of rights issue so as to avoid novice mistakes like purchasing the shares after ex-rights and expect to have rights entitlement.
Taking example from Cache Log Trust 18 for 100 Underwritten & Renounceable Rights Issue announced on 5th Sep 2017.
Explanation of Jargon
- Underwritten
- It means that the rights issue is insured to raise a minimum capital sum. So in a event that the rights issue is unable to raise enough capital from shareholders, the balance would be paid by the underwriter (insurance).
- Renounceable
- It means that the rights entitlement given to shareholders can be traded on open market as a temporarily separate counter from parent counter.
- Parent Counter: Cache Logistics Trust
- Temporarily Counter: Cache Logistics Trust Rights
- For every 100 Cache Logistics Trust units, you are issued temporarily 18 Cache Logistics Trust Rights units to trade.
- These temporarily rights are called nil-paid rights.
Sequence of Events
- 7 September – Last day of cum-rights trading
- This means that any shares purchased before the end of 7 September will be entitled to 18 nil-paid rights for every 100 shares owned.
- 8 September – Start day of ex-rights trading
- This means that any shares traded will no longer comes with the rights entitlement.
- 15 September – Commencement of trading of Rights Entitlement
- This means that the nil-paid rights are now available to trade. We can see the temporarily counters appearing in SGX.
- 25 September – Last day for trading of Rights Entitlement
- 29 September – Last day for payment for Rights Issue, Excess Rights Issue and Renounced Rights (nil-paid rights).
Useful Calculations during Rights Issue
- Theoretical Ex-Rights Price
- Price Proportionaly between [Cum-Rights Price] and [Rights Issued Price]
- Theoretical Value of Nil-Paid Rights
- [Theoretical Ex-Rights Price] – [Rights Issued Price]
Overall Thoughts
By right, the price movement during the rights issue process can be easily anticipated. For example, the first day of ex-right trading (7 Sep) should expect a fall in share price since the share no longer entitle us to any discounted rights. Strangely not for Cache…
(it makes me doubt my understanding of ex-rights lol, guess its the effect of 七月)
P.S. I’m just an amateur engineer who tries to make sense of the price data provided.
Majulah Millennials 
Not sure how long you guys been observing SG market, but this is fairly expected (happens more often than you think). And not just on Cache. Not saying i have a definite explanation for the price movement, but i definitely have a theory.
You’ll soon spot the pattern of what moves the price, rather than the maths behind it.
LikeLike
Thanks for dropping by WJ 😎
This is our first encounter with rights issue so we are very curious and wanna pen it down.
Please share with us your theory and hope one day we can be as experienced as you 😎
LikeLike
If experience is measured by quantity, i guess i am still accruing too so your statement there will be hard to fulfill.
But replying here to say that i won’t want to rob you guys the joy of discovery. If you still struggle to spot the typical pattern after a few more rights issues, find me and i’ll try to point you towards the light.
Incidentally, Manulife REIT is doing one now. Mapletree Log is doing a PO (similar) now too.
Cheers
LikeLike