Everything You Need to Know About Corporate Actions When You Buy Singapore Shares
As an investor, you may have seen the acronyms “CD”, “XD”, “CR”, “XR”, and so on when you look up the share price of a stock.
Or the acronyms may be spelt out in full, such as “Cum Dividend”, “Ex Dividend”, “Cum Rights”, and “Ex Rights”.
What do they all mean?
And what do investors have to take note of when it comes to such corporate actions?
Here, let’s understand how common corporate actions on the Singapore Exchange (SGX) work.
You can find out about the corporate actions for the stocks you from SGX’s website.
Cum Dividend and Ex Dividend (CD and XD)
When a stock trades as “Cum Dividend” or “CD”, it means that the company is paying out dividend soon.
It’s like a notice of the amount of dividend to be paid out to shareholders by the company.
When you buy a stock on or before CD, you will be entitled to the dividends, provided you hold it till “Ex Dividend” or “XD”.
If you buy the company on or after XD, you will not be entitled to the dividend.
The “Record Date” or “Book Closure Date”, usually one or two business day(s) after XD, is when the company records the shareholders that it has to pay out the dividend to.
The “Payable Date” or “Payment Date”, as the name suggests, is the date that the dividend will be paid to shareholders.
Let’s look at a real-life example for ESR-REIT (SGX: J91U) for the distribution period from 1 April to 30 June 2020:
|Cum Dividend||16 July to
22 July 2020
|Ex Dividend||23 July 2020|
|Record Date||24 July 2020|
|Payable Date||17 Sept 2020|
ESR-REIT announced its distribution for its 2020 second-quarter during its half-year results announcement on 16 July.
So, if you want to receive the distribution of S$0.00662 per unit declared, you have to own the REIT’s units anytime before 22 July.
If you buy units in the REIT on 23 July, you will not be entitled to the distribution since the REIT will be trading “Ex Dividend” or “XD”.
Let’s say you own the REIT during the CD period and decide to sell it off on XD or after that but before the payable date, you will still be entitled to the distribution.
Stock Price Fall Upon XD
In general, a company’s stock price after it becomes XD drops by around the same amount of declared dividend.
By giving out the dividend, the cash available on the company’s balance sheet falls. Therefore, its share price tends to reflect this change since new shareholders will not be entitled to the dividend.
But this is not a given.
There have been instances where a company’s share price has gone up on XD.
Or the share price can drop more than the amount of declared dividend due to other factors like market sentiments.
The dividend can come in the form of “scrip dividend” as well, instead of being paid out in cash.
In this case, the dividend is paid in the form of the company’s shares.
A company that is declaring dividend will inform its shareholders if its dividend is being paid in scrip or cash.
Shareholders may then choose to accept scrip or cash for their dividends.
The subscription price of the scrip dividend will usually be lower than the market price to entice shareholders to receive dividend in the form of shares.
By issuing scrip dividend, a company can conserve its cash and put it to other uses.
If you are a long-term shareholder and have a firm belief in the company’s future prospects, accepting scrip dividend might prove to be a better proposition.
By accepting cash dividends, your shareholdings will be diluted by others who accept scrip dividends and you would need to re-invest this cash anyway to compound wealth.
One drawback about scrip dividends is that you may end up with odd lots (anything less than the standard board lot of 100 shares) if you accept scrip dividends.
Cum Rights and Ex Rights (CR and XR)
During a rights issue, a company offers shareholders the right, but not an obligation, to purchase new shares (known as “rights shares”) in proportion to their existing shareholdings at a fixed price (“rights issue price”).
Companies undertake rights issues to raise cash to expand their business or pare down the debt.
The rights issue price is usually given at a substantial discount to the market price so that it entices existing shareholders to subscribe to the rights.
There are two types of rights issue.
They are the renounceable rights issue and the non-renounceable rights issue.
A recent example of the renounceable rights issue is for Sembcorp Marine Ltd (SGX: S51).
A renounceable rights issue is one which is transferable, and therefore can be bought or sold on the stock market during the rights trading period, usually for one to two calendar weeks.
In the renounceable rights issue, the rights that are offered to existing shareholders are traded as a separate temporary counter from the parent share as indicated by an alphabet “R” in the counter trading name.
For example, “SIA R” for the Singapore Airlines (SGX: C6L) rights issue in May.
Upon trading, these rights are known as “nil-paid rights”, as they have not been exercised by shareholders into new rights shares at the rights issue price.
On the other hand, “non-renounceable rights” refer to rights offered to an existing shareholder which cannot be traded in the open market.
When rights are issued by a company, the shareholder has three options:
- Accept the rights and purchase new shares at the rights issue price;
- Sell the rights in the market and make a profit (provided the rights are renounceable); or
- Simply ignore the rights issue, which will dilute his/her shareholdings.
Just like in the case of dividends, when the company decides to issue rights, “CR” will be shown beside the company’s name, which means “Cum Rights”.
When you buy the company’s shares on or before CR, you will be entitled to the rights, provided you hold it till “Ex Rights” or “XR”.
If you buy the company’s shares on or after XR, you will not be entitled to the rights issue.
After the rights issue has closed, the share price will adjust accordingly and this is known as theoretical ex-rights price (TERP).
TERP = [(A x current price per share)/(A+B)] + [(B x rights issue price)/(A+B)]
where A = number of shares owned and B = number of rights shares entitled
Cum Bonus and Ex Bonus (CB and XB)
A bonus issue is an offer of free additional shares to existing shareholders, in direct proportion to their existing shareholding in the company.
On 20 July 2020, Top Glove Corporation Berhad (SGX: BVA) announced that it’s undertaking a bonus issue on the basis of two bonus shares for every existing share held by a shareholder.
Just like in the case of dividends, when the company decides to issue bonus shares, “CB” will be shown beside the company’s name, which means “Cum Bonus”.
When you buy a company on or before CB, you will be entitled to the bonus shares, provided you keep it till “Ex Bonus” or “XB”.
If you buy the company on or after XB, you will not be entitled to the bonus shares.
Similar to rights issue, the stock market will adjust the share price proportionately after the bonus issue to account for the increased number of shares in issue and to allow for comparability between prices on the XB and CB.
This is known as the theoretical ex bonus price.
Theoretical Ex-Bonus Price = (A x Market Price Per Share)/(A + B)
where A = number of shares owned and B = number of bonus issues entitled
Cum Entitlement and Ex Entitlement (CE and XE)
Actions such as stock splits, capital gains distribution, reverse stock split (or share consolidation), or delisting come under this category.
For example, VICOM Limited (SGX: WJP) did a stock split recently where every existing share then was split into four shares.
During a stock split, there’s no change in the market capitalisation of the company or the value of shares you own in the company.
When a company is under entitlement, “CE” will be shown beside the company’s name, which means “Cum Entitlement”.
When you buy a company on or before CE, you will be entitled to the corporate action, provided you keep it till “Ex Entitlement” or “XE”.
If you buy the company on or after XE, you will not be entitled to the corporate action.
A tender offer is an offer made to the public to acquire some or all outstanding shares of a company that is not owned by the offeror.
The aim of the offeror would usually be to privatise the company.
An offer provides an opportunity for shareholders to exit the company at a premium to the last traded share price of the company.
The premium must be high enough to entice shareholders to sell their shares.
If shareholders deem the offer price to be undervalued, the offeror may not have enough acceptances to delist the company.
A prominent example in February this year was when BreadTalk was privatised by BTG Holding when the latter offered to buy all shares of the company at S$0.77 per share, which was around 19% higher than BreadTalk’s closing price of S$0.645 on 21 February 2020.
The company was then delisted from SGX.
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Disclaimer: The information provided by Seedly serves as an educational piece and is not intended to be personalised investment advice. Readers should always do their own due diligence and consider their financial goals before investing in any stock.