Corporate Actions Flashcards

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1
Q

what is the difference between a callable and putable bond

A

callable: redeemed earlier at discretion of company,
putable: redeemed at discretion of investor

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2
Q

what is a sinking fund

A

where the principal is paid in part before final redemption date

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3
Q

what is a special ex trade,

special cum trade

A

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)

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4
Q

what is claim generation in corporate actions

A

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

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5
Q

what are the features of a rights issue

A

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.
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6
Q

what is the theoretical nil paid price and what is the equation

A

when investor sells right to a rights issue, what are your rights worth,

theoretical nil paid price = theoretical ex-rights price - subscription price

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7
Q

what is maximum subscription at nil cost

A

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

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8
Q

what is a bonus/scrip issue

A

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

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9
Q

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

A

reflect the number of shares in issue x nominal value,

any surplus raised on issue

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10
Q

what is a stock split and a reverse split

A

split shares in two, nominal value halves,

consolidate shares, join 2 into 1, nominal value increases

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11
Q

When a company issues new shares, what happens to the nominal value of each share ?

A

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.

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12
Q

what are the reasons for share buybacks

A

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

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13
Q

what needs to be done before share buybacks

A

approval required by shareholders -> special resolution, 75% approval needed

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14
Q

what are the methods of company buy-backs

A

block trades,
accelerated book-building (who willing to sell),
best efforts
-back stop price - maximum purchase price,
bought deal (company who underwrites takes risk)

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15
Q

what is the theoretical ex rights price

A

total value of shares / number of shares, after rights issue

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