Guide to Corporate Actions November 12, 2021
What are they and how do they affect an Investor?
What is a Corporate Action?
A corporate action is any activity that brings material change to an organisation and impacts its stakeholders including shareholders, both common and preferred, and bondholders.
Types of Corporate Actions
1. Types of Dividends
2. Capital Repayments
3. Stock Splits/Reverse Stock Splits
4. Rights Issues
5. Tender Offers
6. Proxy Voting
1. Type of Dividends
Non-Obligatory payment for shareholders in the form of cash or shares.
Dividend Choice/ Scrip Dividends
- Shareholders are given a choice between cash pay-out and an equivalent amount in shares
Cash Dividends
- Shareholders are given a cash Pay-Out typically based on the profits for the current Financial Year
Important Dates to note
| Ex-Date |
Shares bought after Ex-Date will be Ex-Dividend(XD) and will not be entitled to dividends
Shares bought before Ex-Date will be Cum-Dividend(CD) and will entitled to dividends |
| Payment Date | Date on which dividends are paid out to investors |
Effects on share price
- Share prices typically drop by an equivalent amount with dividends given.
Benefits
- Dividends can be seen as additional gains or buffer for capital loss of the share
Actions required by the shareholder
- In the case of Scrip Dividends
- Submit the form given, indicating your choice of dividend form
- If instructions are not given by the deadline, dividends will be paid out as cash/ shares depending on previous instructions from the shareholder
2. Capital Repayments
Capital repayments refer to the paying back the principal sum of a loan amount to its debtors by the company. They help to reduce long-term debts leading to less interest paid over time.
Actions required by the shareholder
- No action is required by the shareholder
3. Stock Split/Reverse Stock Split
A stock split/reverse stock split is the dividing the existing shares into a larger/ smaller quantity.
For example
- An investor owns 100 shares of Apple at $120 per share (value: $12,000).Based on the assumption that Apple undergoes a 1-3 share split, a share split will result in the investor’s ownership of 300 shares of Apple at $40 per share
(value: $12,000).Hence, the total value of holdings does not decrease.
Effects on share price
- Share price will be relatively lower, but the overall value of the shares remains the same
Benefits
- Increases accessibility to retail investors who are deterred by the higher prices
Actions required by the shareholder
- No action is required by the shareholder
4. Rights Issue
Shareholders are given the right to buy additional shares. Renounceable rights are often transferable, allowing the holder to sell them in the open market
Important Dates to note
| Ex-Date |
Shares bought after Ex-Date will be Ex-Rights(XR) and will not be entitled to the Rights Issue
Shares bought before Ex-Date will be Cum-Rights(CR) and will be entitled to the Rights Issue |
| Exercise Period | Period that instructions can be sent to brokers to exercise the Rights |
| Trading Period | Rights that can be listed on the exchange that can be sold and bought during this period |
Effects on share price
- The Rights Issue leads to a dilution in share price; amount of which is subjected to the market conditions
Benefits
- The Rights Issue price is typically at a discount to the prevailing market price.
Actions required by the shareholder
- If the shareholder wishes to exercise the rights, he/ she can do so by filling up the form sent to the shareholder’s residential address.
- The shareholder can choose to request for excess rights but the quantity of which is subjected to the company’s discretion.
- If the shareholder does not want to exercise their rights, no further action is required.
5. Tender Offer
A bid to purchase some or all of the shareholders’ stock in a company
Important Dates to note
| Offer Date | Day on which the offer commences |
| Expiration Date | Day on which the Tender Offer ends |
Effects on share price
- Might result in an increase/decrease in share price, to that of the offer
Benefits
- The Tender Offer price is generally at a premium to the prevailing market price.
Actions required by the shareholder
- Sell if the shareholder wishes to do so or
- No Action is required for shareholders
6. Proxy Voting
Giving another person (Usually a Director) the right to vote on the shareholders’ behalf
Actions required by the shareholder
- Fill up and submit the proxy statement by the given deadline
Where can you find the list of Corporate Actions listed on SGX?
Head to SGX Website ( www.SGX.com ) > Securities > Corporate Actions
Fees for Corporate Actions on POEMS Platform
Effects of Corporate Actions on Prices
Corporate actions may or may not have an effect on prices. They are subject to other macroeconomic factors such as changing market forces of demand and supply, political / economic events, market sentiment etc.
A stock / share split for example, has a direct impact where the price of the share will be lowered. A company paying out cash dividends may have an impact on its share price because of the economic value transfer from company to investors.
In the event where a shareholder has an account with multicurrency facility, the shareholder will receive the cash dividend in the declared currency unless otherwise determined by the issuer / Phillip Securities.
In summary, it is essential for investors to understand corporate actions and its impact on the company’s financials and potential, which will then aid them in making better investment choices.
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About the author
Gary Koh
Equities Dealer
Phillip Investor Centre (Marine Parade)
Gary is an Equities Dealer at Phillip Investor Centre (Marine Parade).
He graduated from SIM-UOL with a Bachelor’s Degree in Economics and Finance. His preferred investing strategy is Value Investing, which allows him uncover value stocks through the use of fundamental analysis.
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