Corporate Actions Flashcards
what is the difference between a callable and putable bond
callable: redeemed earlier at discretion of company,
putable: redeemed at discretion of investor
what is a sinking fund
where the principal is paid in part before final redemption date
what is a special ex trade,
special cum trade
ex: without dividend,
special ex date: can only happen in last 10 days of cum div period
cum: begin on ex div date, allowed up to one day before payment date (ch6, 5/13)
what is claim generation in corporate actions
if dividend not paid to buyer even though bought within cum-div period, buyer’s broker has to make a claim from the sellers broker
what are the features of a rights issue
existing shareholders receive provisional allotment letter which is the right to subscribe to more shares in proportion to their existing holding
- mitigates risk of diluting ownership
- shares typically offered at discount to current market price.
what is the theoretical nil paid price and what is the equation
when investor sells right to a rights issue, what are your rights worth,
theoretical nil paid price = theoretical ex-rights price - subscription price
what is maximum subscription at nil cost
choose to sell a portion of rights available and use funds raised to finance the take-up of the remaining rights,
number of rights to be sold = (number of rights available * subscription price) / theoretical ex-rights price,
always round up
what is a bonus/scrip issue
follow on issue to existing shareholders in proportion to their existing holding
- share issued free of charge
- significantly dilutes the share price,
reason is to improve marketability
what is share capital on the statement of financial position and the share premium on the statement of financial position during the issue of new shares
reflect the number of shares in issue x nominal value,
any surplus raised on issue
what is a stock split and a reverse split
split shares in two, nominal value halves,
consolidate shares, join 2 into 1, nominal value increases
When a company issues new shares, what happens to the nominal value of each share ?
must be covered in the share capital account; even if no new capital has been raised. This value is often referred to as the called-up share capital.
what are the reasons for share buybacks
rationalise capital structure (less equity more debt),
substitute dividend payouts with share repurchases (give investors capital gain),
deploy excess cash flow and return it to shareholders
what needs to be done before share buybacks
approval required by shareholders -> special resolution, 75% approval needed
what are the methods of company buy-backs
block trades,
accelerated book-building (who willing to sell),
best efforts
-back stop price - maximum purchase price,
bought deal (company who underwrites takes risk)
what is the theoretical ex rights price
total value of shares / number of shares, after rights issue