$$$ KPO and CZM $$$: Mistake on Rights Issue - CapitaLand Commercial Trust

Monday, October 16, 2017

Mistake on Rights Issue - CapitaLand Commercial Trust

I made a mistake on CapitaLand Commercial Trust (CCT) rights issue! By now you would have come across the news - Capitaland Commercial Trust buys Asia Square Tower 2 for $2.09b. Although the acquisition is not yield-accretive (dividend yield decrease to 4.62% from 5.36%), KPO thought that it would still be a great idea to buy and hold CCT directly instead of the upcoming 3rd REIT ETF - Lion-Phillip S-REIT ETF.

The rights issue presented an excellent opportunity for me to become a shareholder at a price lower than the market price if I were to apply/oversubscribe to the rights! Technically, based on the theoretical ex-rights price (TERP) of $1.648 and a subscription price of $1.363, if I were to get my rights/baby shares at any price lower than $0.285 ($1.648 - $1.363), I would have the chance to get it lower than the market/TERP. Hence, I queued at $0.28 and got it on the second day when the rights started trading.

My plan was to buy 2000 rights and oversubscribe by another 2000 shares in the hope that I will be allocated some "bonus" shares at a cost of $1.363 which will reduce my entry price significantly.

Today, I called SCB and told them my grand plan that I would like to subscribe to all 2,000 rights and apply in excess another 2,000 shares. The person said that it might not be possible and put me on hold. When she returned, she asked if I own the mother shares (CCT), I said no. She replied saying that only those that owned the mother shares (CCT) as of the "Rights Issue Books Closure Date", 29th September 2017 can apply in excess.

I went on to question her if the person sold off all his rights, would he still be able to apply in excess assuming he owns the mother shares (CCT) as of the closure date and she responded with a firm yes!

This is not intuitive at all! The rights to apply shares in excess is not with the person owning the rights/baby shares but with the shareholder that sells you the rights. Do take note of this!

To all the readers, this is the mistake I made and I hope that it will not happen to any of you!

On the bright side, my total commission for owning 2,000 shares of CCT is $1.31 (0.04%). lol.

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  1. Can u help me understand what happened after u bought rights at $0.28? Does that mean ur cost is just $0.28 per share and u own capitaland trust shares?

    1. Hi Jon.W,

      Sure! After buying the rights at $0.28, I would need to subscribe/exercise the rights at $1.363 at no additional cost/commission. So the total cost would be $0.28 + $1.363 = $1.643 x number of shares.

  2. Hi KPO , can i ask a few question to learn from your 1st hand experience.

    1. I assume you had to have the shares for CCT before 29 Sept, before you can exercise your subscription to the rights @ 1.363.

    2. If you had your shares after 29 Sept, you had to subscript to the rights @ 0.28 on top of the 1.363 which made your subscription cost to 1.643.

    Is my above understanding correct ?

    Furthermore, can i also ask if as existing shareholder, i do not subscribe to the rights, my shares will be diluted and DPU will drop. Is that right ?


    1. Hi Starbuc3,

      1. Nope. I did not own any CCT shares before 29th September. I purchased the rights when it started trading from 4th October and eventually went on to exercise it.

      2. I purchased the rights at $0.28 + the exercise price of $1.363 would make my total cost to $1.643.

      Yes (dilution) and yes (decrease in DPU) especially when existing shareholder choose not to subscribe to it.

  3. Hi...May I know why is your brokerage fees so low? I thought SCB charges mininum $10 per transaction?

    1. Hi Choon Lim,

      Yes, you are right but there is no minimum fees for priority bank customers and we happen to be one since our portfolio/investment with them is > $200,000 :)

    2. Wao...big fish...no wonder. Thank you for your explanation :) Still long way to go for me :)

    3. Hahaha. I small fry only. Big fish would not be blogging and sharing here. Jia you! Everyone starts small :)

  4. Hi all,
    Correct me if I'm wrong. Once the rights has been renounced or sold away, not even the seller who still holds on to the mother share nor the buyer of the rights can apply. Simply put, only the entitled share holder to the rights can apply for excess. Once renounced or sold, it goes into the thin air.

    1. Hi David,

      I guess you are slightly confused. If one cannot use the sold rights to apply for mother share, who will buy them? Let me give you some examples.

      1. Original shareholder was issue rights. He exercise the rights and he can apply for excess if he wants.

      2. Original shareholder was issue rights. He sold all his rights but he CAN still apply for excess if he wants.

      3. Someone buys the rights (like I did above). He can exercise the rights but he CANNOT apply for excess because he is not the original shareholder.

      Hope this helps!

    2. can i ask if u r original shareholder, there is no limit to the amount of excess rights u can apply?
      the remaining excess rights to be given out to those applied will be those left unsold in the market right?

    3. Hi Jon.W,

      Yes, you are right. I guess you are only limited by the capital you have. Hahaha.

      Yes, if the rights issue is very popular and fully subscribe. It is possible that one will not be given any excess.

    4. thank you!!
      can i just ask your past experience on excess rights, how often do you get it?

    5. Hi Jon.W,

      You are welcome! I have never encounter a full or no allocation. I guess I am fortunate enough to always get a bit to lower my average entry price. Hahahaha.