Please also view my latest article on Noble Rights Issue here:
Noble 1-For-1 Rights Issue: What To Do Next If You Are A Shareholder (4 July 2016)
Why Do Companies Issue Rights? Are They Necessarily A Good Thing For You? (26 July 2016)
Noble Group Limited is a commodity-related company and is a component of the STI Index. It is a highly traded stock and usually appears on the Top Volume list. Volatility is one of its top characteristics. The company is an investment holding company and provides supply chain management services for a range of industrial and energy products to commercial and industrial customers worldwide.
Recently, the company has been hitting the papers with a string of news, from the resignation of its CEO to the appointment of Co-CEOs, the sale process of Noble Americas Energy Solutions and the latest, an announcement of a US$500 million rights issue. As Noble is a top volume stock with a high percentage of public float (76.08% as of today on StockFacts), it is not uncommon to get questions on what this rights issue is all about.
WHAT IS A RIGHTS ISSUE?
A rights issue is a "right" given to existing shareholder to purchase new shares, usually at a discounted price.
UNDERSTANDING NOBLE'S RIGHTS ISSUE
Noble announced a proposed renounceable underwritten rights issue, at an issue price of S$0.11 for each rights share, on the basis of 1 rights share for every 1 existing ordinary share.
So, say you have 1,000 shares of Noble in your CDP. This gives you the "right" to buy another 1,000 shares of Noble at S$0.11. This means, if you fork out another S$110 (1,000 shares x S$0.11=S$110), you will get additional 1,000 shares of Noble, making your resulting Noble holdings 2,000 shares. We usually call this action of buying "subscription of rights".
It is "proposed". Proposed means that it is subjected to some conditions before it is official, such as compliance with SGX listing requirements, shareholder's approval, certain undertakings and certain underwriting conditions. This morning, the company received in-principal approval from SGX for the listing and quotation of its rights shares on SGX's main market.
It is "renounceable". Renounceable means that the rights share have a value and can be traded. Hence, if you decide not to take up the rights (ie. don't wish to pay S$110 for additional 1,000 shares), there's still some value to the rights and you can sell them off in the market. We usually call this action "cashing out on your rights". The rights have a trading period (a couple of days) and usually has a trading name with an "R" behind. As in the case of Noble rights, it will likely trade with the name "Noble R". The trading of the rights give existing investors an opportunity to cash out on their rights, while giving new investors an opportunity to buy Noble shares at a discounted price of S$0.11.
It is "underwritten". Underwritten means that any shares offered but not taken up by shareholders will be taken up by underwriters. In this case, the underwriters are The Hongkong and Shanghai Banking Corporation Limited, Morgan Stanley Asia, DBS Bank Ltd, Société Générale and ING. In other words, if any of the rights issue offered to investors are not taken up, the investment bankers will "guarantee" the take-up.
WHAT YOU NEED TO LOOK OUT FOR IF YOU HAVE NOBLE SHARES
Noble released news this morning about its receipt of in-principal approval from SGX. With this news, we will likely hear about important dates on the rights issue soon. Here's what you need to look out for:
- Offer Information Statement that will be despatched to your mailing address in due course
- No. of rights shares you are entitled to
- Books closure date for the rights, to determine if you are entitled to the rights or not, reflected on the Lim Tan platform as CR or XR (CR means cum-rights and XR means ex-rights)
- Trading dates for the rights, if you wish to cash out on your rights
- Closing date for subscription of the rights, if you wish to subscribe to the rights
HOW TO SUBSCRIBE FOR NOBLE RIGHTS SHARES
Although concrete information is not released on this yet, usually, subscription occurs via ATMs of the participating banks. The participating banks are usually the 3 local banks, UOB, DBS and OCBC. Alternatively, there will also be a form attached to your Offer Information Statement, which you can post back to CDP by the closing date.
APPLYING FOR EXCESS RIGHTS SHARES
If you find the offer for rights shares very attractive, and have a good view that Noble shares will rise and hence be able to profit from it, you can also choose to apply for excess rights shares. Of course, the excess rights shares are not guaranteed but always worth a try. Excess rights shares can be applied via ATMs of the participating banks or via the form attached to your Offer Information Statement.
CALCULATIONS AND KNOWING WHERE YOU STAND
Theoretical Ex-Rights Price
When Noble rights were announced, the stock was trading at S$0.30. With the rights shares offered at S$0.11, this makes the theoretical ex-rights price as (S$0.30 + S$0.11)/2 = S$0.205. This means, the stock will, theoretically, cost $0.205 after the rights exercise. Do remember, there is now a double amount of shares in the market. We call this "dilution of shares". More shares, at a lower price.
Calculating Your Positions
Let's give you an example, say you bought Noble, 1,000 shares at S$0.41, 3 months ago. You have the stock in your CDP. And you decided to subscribe to the rights issue for 1,000 shares. Your average price will become (S$0.41 + S$0.11)/2 = S$0.26. So, you then hold 2,000 shares at average of S$0.26. From here, questions you can ask yourself:
- Am I able to make back from the averaging-down? In the above case, S$0.26 is not far from current trading price (S$0.20 plus) hence it is worth a bet.
- Can I hold the stock to wait for better returns?
- What price do I intend to exit?
- Do I prefer to cash out via selling the rights?
Have a question on your Noble rights shares? Do feel free to drop me an email at lyndellwong@limtan.com.sg.
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