Tuesday, July 03, 2007

Pacific Andes – Application for Rights & Excess Rights (ARE)

This post will help to explain the process of applying for the rights shares in PAH and how to go about applying for excess rights shares. The relevant forms must be filled in and the relevant details provided in the ATM application in order to qualify for it to be a valid application. There are basically 2 methods to subscribe for the rights shares: through CDP (post) or through the ATM. The ARE form given is unique to each individual shareholder and is NOT transferable. Shareholder should only use the hard copy form if they decide to apply through CDP and not through ATM.

Application through CDP

If application is made through CDP (by post), then the manual ARE form has to be filled in. Write down the number of rights shares which you are entitled to subscribe for (this will be equivalent to your shareholdings as at June 22, 2007 as it is a 1:1 rights issue), and multiply this by the rights price of S$0.52 to obtain the total amount payable. If one wishes to apply for excess rights shares, one has to fill in the number of shares (in the next row) he wishes to apply for, multiplied once again by S$0.52. The total(s) will then be added together and a cheque should be prepared and sent together with the ARE in the self-addressed envelope provided to back to Pacific Andes for processing.

Assuming excess rights are allocated, the portion will be pro-rated to the amount you have applied for (example, if 1 in 5 excess rights were given and you had applied for 5,000 excess rights, then you would receive 1,000 and pay S$520). The excess rights monies will then be refunded back to you by cheque or through your bank account (the remaining 4,000 rights share multiplied by S$0.52 or S$2,080 in this example).

Application through ATM

If applications are made through ATM, then there is no need to fill in and submit the manual ARE form. The subscriber should log into his bank account through the ATM and choose security application. He will then proceed to follow the instructions to apply for the rights shares and (if any) excess rights shares. He must also verify his CDP account number (it will be flashed on-screen) to see that it is correct, before confirming the number of shares to be applied for. The number of shares which one is entitled to is essentially the number of provisional rights shares (nil-paid) allocated on ex-rights. The procedure is similar to the CDP method except that the funds will be automatically debited from your bank account immediately.

Several options are available for investors who plan to trade in the rights shares on the open market. They are as follows:-

Purchase of additional rights shares from the open market

The additional rights shares purchased will be dealt with separately (another form will be provided by CDP after T+3 days) and should NOT be included under the rights share provisional allotment or excess rights shares application amount in the ARE. The purchase amount of the rights shares should still be settled according to the contract note in T+3 days.

Sale of Partial Allotment of Rights Shares, retention of remainder

Assuming an investor is allotted 10,000 provisional rights shares and decides to sell 5,000 on the open market. He will then receive the proceeds from the sale of the 5,000 rights shares at S$X, after T+3 days. However, he can still proceed to apply for his remaining 5,000 provisional rights shares at S$0.52. He only needs to indicate 5,000 in the ARE and ATM application and not 10,000 as he had already sold off 5,000 in the open market.

Sale of Full Allotment of Rights Shares

If an investor sells his entire provisional allotment in the open market, then there is no necessity to use the ARE or the ATM to subscribe (unless he wants excess rights shares, which sorts of defeats the purpose of selling it in the first place right ?). However, note that by doing this, the investor will be diluted as his original shareholding is now dividend by double the size of the original share capital base.

Conclusion: Only by subscribing fully to the provisional allotment will you maintain your proportional shareholdings in PAH and suffer zero share dilution. If one purchases or applies for excess rights shares (and gets allotted), then one actually increases his proportionate shareholdings with respect to the enlarged share capital base. This rights issue is currently earnings dilutive from the perspective of current FY 2007 earnings (even with the 63.9% consolidation of CFG). However, from the perspective of future earnings, there is not much clarity as the results for 1Q FY 2008 are not out yet, profit margins are not known; and the impact of the 63.9% of CFG has yet to be fully assimilated into the financials. Remember that PAH’s performance is now strongly dependent on earnings strength of CFG (as they now own 63.9% instead of 28.8%).


littlecartnoodles said...

Thanks for this, musicwhiz.

Anyway, after reading a PDF of the OIS, I realised that, as I'm working overseas, there is no way I can respond by 11 July with a bank draft/cashier order. So I sold off all my rights today.

Anonymous said...

This rights issue is not as complicated as those that require you to pay for the rights using dividends that the company gives out. I think SGmusicwhiz has explained the procedure quite completely here.

Just a little caveat on subscribing to the rights via the ATM. If I am not mistaken, if you have subscribed to any other rights issue before, via the ATM using a previous similar account, you are not required to verify or validate your CDP account number again.

bibi said...

Have some questions regarding rights..hope someone can provide the answers

1) can joint names CDP(&bokerage) account be entitled with rights shares?

2) If i sell off my rights entitlement ..can i later still apply for excess shares/warrents?

3) Is it true that those holding odd lot (e.g 400 shares instead of 1000 shares) has higher chances to get excess shares due to need to round up

musicwhiz said...

Hi bibi,

I am afraid I am not that experienced with rights issues as this is my first, thus I don't know the answers to your qn 1 and 3. For qn 2, I believe you cannot apply for excess unless you have the provisional allotment, but can someone correct me if I am wrong ?

I think for qn 3, it's probably not true. I think it's as random as IPO balloting, but I could be wrong. :)

Good luck !