How to apply for rights issues: Step-by-step guide ~ My Finance Marathon

If you are new to investing, you might have heard of rights issues while researching for potential stocks. But what exactly does it mean when a company is undergoing rights issues? As Frasers Centrepoint Trust is currently undergoing rights issues, I would use it as an example in this blog.

What is a Rights issue?

In simple terms, a rights issue is an invitation to existing shareholders to purchase additional new shares in the company. This usually happens when the company wants to raise equity to fund its acquisition or repayment of debt.

In the case of Frasers Centrepoint Trust (FCT), they are planning to raise up to $1.39 billion in equity to fund its acquisition of the remaining 63.1% of AsiaRetail Fund (ARF). ARF portfolio includes Tiong Bahru Plaza, White Sands, Hougang Mall, Century Square, Tampines 1, and one office property, Central Plaza. Once the acquisition is completed, FCT's portfolio will increase from 7 to 11 retail malls. (FCT is planning to divest Bedok Point due to poor performance)

Now you know what rights issues are, here are some additional things you should know of.

1) Renounceable vs Non-Renounceable

There are two types of rights issues, namely renounceable and non-renounceable.

Renounceable rights allow eligible shareholders to sell their entitled share on the market in the event they choose not to purchase it. On the other hand, non-renounceable rights mean shareholders will not be able to sell their entitled share to 3rd parties even if they do not want to subscribe to the rights.

*If you are not planning to subscribe to your rights, you should consider selling it on the market to reduce the dilution of share one will be exposed to during the rights issues.

2) Entitled shares and excess rights

During a rights issue, every shareholder would be entitled to a certain amount of rights depending on your current holdings. In the case of FCT, for every 1,000 existing units held by the shareholder, they will be entitled to 290 new units at a price of S$2.34 per new unit.

Wait, you must be thinking, doesn't SGX trade in lots of 100 shares? Yes, you are absolutely right. If you only hold 1,000 shares, your portfolio may end up with odd lots if you were to subscribe to the rights. This can be frustrating to investors as odd lots are harder to sell on the market hence it should be avoided if possible.

However not all hopes are lost. During a rights issue, shareholders may choose to subscribe for excess. Meaning that while I am only entitled to 290 units, I can apply for 300 units or even 1000 units in order to prevent odd lots. Of course, this is not 100% guaranteed. Especially if the rights issue is oversubscribed.

3) Should you subscribe?

Now the question is should you subscribe to the rights issue. In my opinion, you should either subscribe or sell your entitled shares to others (Don't do nothing or you may risk being diluted by the rights issues).

If you believe in the companies directions, a rights issue is an attractive way to enter more shares as most of the time the new unit will be selling at a slight discount to the current market price. However, if you believe the fundamentals of the company have changed and do not wish to subscribe for its rights, make sure you sell your rights to the market so you 'cash out' some of the stock value.

4) How to subscribe?

If you are a shareholder of a company that is doing a rights issue, you would most likely receive an instruction booklet to guide you on how to subscribe. Look out for the timetable like the one shown below for key dates.

Record date - Anyone holding onto the company shares from this date onwards would be entitled to the rights issue

Opening date - The date where you can start subscribing or trading your rights

Closing date - The last day to subscribe and trade your rights

Expected date - The expected date the new unit will be credited into your account

Source: Fraser CPT

Eligible unitholders with shares in their CDP may subscribe to the rights either through CDP by completing and submitting the relevant portion of the ARE or by way of an electronic application through an ATM (Easier to do). I have just subscribed to FCT rights issues so here is a step by step guide on how to apply through DBS/POSB ATMs.

Insert your DBS/POSB ATM Card
Enter your PIN
Select 'More Service'
Select 'ESA-IPO/RIGHTS APPLN/BONDS/SSB/SGS/INVESTMENTS'
Select 'RIGHTS APPLN'
Some advisories will appear on the screen. Press 'CONTINUE' once you finish reading
Select the DBS/POSB account (Autosave/Current/Savings/Savings Plus) you wish to debit from
Select the rights you are intending to subscribe to. (i.e 'FRASERS CPT NRO')
Check the details of the rights issues and press the 'TO CONTINUE' key to continue
Enter the number of new units you want to subscribe to (including excess units)
Press the 'ENTER' key if your CDP number is correct (If it is incorrect, re-enter your account number)
Check the details of your applications and press the 'ENTER' key to confirm the application
Once done, remove the Transaction Record for your reference and rentention
Retrieve your ATM card

If your shares are in a custodian account, under CPFIS or SRS, you need to contact your broker/bank to subscribe to the rights issues. Do refer to the instruction booklet provided for more information on how to subscribe.

If you are interested to learn more about investing, do check out this 4-part series article to further improve your financialal knowledge.

My Finance Marathon