Impact of OCBC Rights Issue to share price

OCBC announced the Rights Issue to partially finance the acquisition of Wing Hang Bank. It will issue 440,047,710 new shares to raise net proceeds of about $3.3 billion. The existing shareholders of OCBC (and buyers of OCBC shares during cum-all trading period) are entitled to subscribe to these rights issue at $7.65 per share. This price is at 25% discount over the last price of OCBC traded on 15 August at $10.20. For every 8 OCBC shares held, shareholder can subscribe to 1 Rights Share.

Let’s take an example through this.

Number of OCBC shares owned = 1,000
Rights Share = 1/8 of 1,000 = 125 shares

Cost to shareholders:

OCBC shares at $10.20 = $10,200 (excl transaction costs)
Rights Share at $7.65 = 125 x $7.65 = 956.25 (excl transaction costs)
Cost per share = ($10,200 + $956.25) / (1000 + 125)
= $9.92

Theoretically, per unit share price after a rights issue should come down. In the above example, OCBC share price should drop to $9.92 from $10.20 (minus 28 cents) after the rights issue. This is a theoretical share price, the actual share price traded would be different due to factors other than rights issue.

Some shareholders may have bought OCBC at a different price from $10.20. They can work out their per unit cost after rights issue using the above method.

Copyright © 2014, limkimtong for Living Investment

The material presented is intended to be general and written in layman’s language as much as it is possible. The author shall not be liable for any direct or consequential loss arising from any use of material written. Please seek professional advice from your financial advisor or financial institutions on material written covering financial matters.

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2 Responses to Impact of OCBC Rights Issue to share price

  1. Mich says:

    Any idea what the Rights Issue process doing to be ?

    If a person has 8 lots of OCBC , he will be able to subscribe to 1 lot of rights.
    Assuming he is issued with these Rights, will the rights be automatically be converted to shares or are there more complications?

    • limkimtong says:

      Perhaps, one can wait for more details from OCBC. Prospectus will be lodged for this rights issue (not available yet). Based on common practice, Rights Issue accumulated by buyer (in your example) will be OCBC shares tradeable on the Singapore Exchange as per normal.

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