Do I need to buy DITO shares to avail of the stock rights offering?
I got this question yesterday, and it’s a good jumping-off point to quickly discuss the ownership aspect of a stock rights offering (SRO) that differentiates it from a regular follow-on offering (FOO), and the related issue of the dreaded “ex-date” and how that applies to SROs in theory and to this particular SRO in practice.
Ok, so first, what’s an SRO? Basically, it’s when a company sells a block of shares to raise money, but where it limits the ability to buy these shares to only people who already own the stock itself.
With a FOO, anyone can contact their broker and put in a subscription request for the FOO shares, but with an SRO, only those that own the stock can make a subscription request; even then, the shareholder’s ability to buy SRO shares is limited by how many shares they already own.
This is called the entitlement ratio, and it governs the number of shares that an eligible purchaser can buy. In DITO CME’s [DITO 5.04] case, the ratio was set at 1 rights share for every 1.72935 DITO common shares owned.
But then the question arises: do you just buy DITO and then buy the rights shares? Not so fast! This brings us to the issue of the ex-date, which in the case of DITO is (or was) December 20, 2021.
The ex-date is the day that the “right” to purchase the SRO shares is no longer attached to the shares, which means that anyone that wanted to avail of the DITO SRO would need to have owned the underlying common shares before the end of trading on Friday, December 17th (in order to own the shares before Monday, December 20th).
Shares purchased on the 20th, or after, do not come with the right to purchase SRO shares (they’re “ex”, meaning “without”).
So, if you purchased 20,000 shares in November, you’d have the right (but not the obligation) to buy up to 11,565 SRO shares (1 share for every 1.72935 shares owned), but if you bought those 20,000 shares on Monday, January 3, 2022, you’d only own the DITO common shares with no associated rights to purchase the SRO shares.
MB BOTTOM-LINE
I’ve seen some experienced traders screw up the ex-date, especially ones that are not accustomed to playing IPOs/FOOs/SROs, so cut yourself some slack if you’ve ever encountered any confusion about it.
Just remember that the ex-date is not a “do it by the end of this day” kind of deadline, as it is an “if you haven’t done it by this day you’re out of luck” kind of deadline.
That said, unless you’re sitting on a pile of DITO shares that you bought before December 20th, you’re just going to be spectating what happens when the SRO shares (P4.88/share) get listed on January 26th.
DITO’s stock price has been steadily falling to meet the SRO price since the price was announced in mid-December, but the truth is that that may just be a continuation of the 10-month fall that started in February.
It will still be interesting to see what happens to the price once the new shares are listed. What’s going to happen next is a complete unknown to me.
Now that foreign companies can own up to 100% of telecommunications companies like Dito Telecommunity, does that provide an opportunity for China Telecom to increase its stake in Dito Telecommunity directly?
If so, would it buy primary shares from Dito Telecommunity or secondary shares from Dennis Uy’s companies? Lots of interesting, completely-speculative wrinkles to explore.
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Merkado Barkada's opinions are provided for informational purposes only, and should not be considered a recommendation to buy or sell any particular stock. These daily articles are not updated with new information, so each investor must do his or her own due diligence before trading, as the facts and figures in each particular article may have changed.
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