HICL infrastructure co ltd - sub shares
JohnRo
Posts: 2,887 Forumite
This is a first for me. Can someone help me decipher this, my understanding is that there is no expiry date.
Stock
I'm presuming an exercise option returns the offered ordinary share for each sub share.
What I'm less clear on is the default option, sub shares to lapse. That presumably retains the sub shares offered now as open ended but what implications might that have in future?
Stock
HICL INFRASTRUCTURE CO LTD
Event Type
Open Offer
(Open Offer) (Ex-entitlement date: 24th February 2017) (Entitlement ratio: 1-for-22) (Subscription ratio: 1-for-1) (Subscription price: GBP1.59) (Option 1: Sub Shares to Lapse (Default)) (Option 2: Sub Shares to Exercise) (Option 3: Apply for Additional Shares) The default option will apply to all holders who do not make an election by the deadline date. HICL Infrastructure Co Ltd (HICL) has announced a proposed fundraising of GBP205 million by way of an Open Offer, Placing, Offer for Subscription and Intermediaries Offer, with the ability to increase the size of the issue to GBP260 million. Under the terms of the Open Offer entitled shareholders have been credited with 1 subscription share for every 22 existing shares held. Each subscription share entitles the holder to subscribe for 1 new share in HICL at a price of GBP1.59 per new share. The ex-entitlement date is the 24th February 2017.
I'm presuming an exercise option returns the offered ordinary share for each sub share.
What I'm less clear on is the default option, sub shares to lapse. That presumably retains the sub shares offered now as open ended but what implications might that have in future?
'We don't need to be smarter than the rest; we need to be more disciplined than the rest.' - WB
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Comments
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I'd expect the lapse option to mean that they have no value and expire worthless. Sub shares normally have a final exercise date beyond which they expire.Remember the saying: if it looks too good to be true it almost certainly is.0
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Basically they are doing an open offer to let existing shareholders buy new shares at the fixed price (one for every 22 you have, as noted above). Therefore your existing shares have given you some additional rights - the ability to subscribe for up to that number of shares at that price and not be turned down. You can sign up to exercise the option if you have cash in your account to fund it in time for the due date. If you didn't use those rights, and they do the fundraising without you, then the rights are worthless because the date has passed.
If you like, you can also apply for more shares in excess of your entitlement, because they want to raise £205 million of new capital and they are only giving existing investors first dibs on the first £105m, so there will be at least £100m available for general public including yourself. However, if they get lots of interest and for example they get £300m of applications for only £100m of spare shares, it will be well over-subscribed, and your request for extra shares might only get allocated £1000 of a £3000 request and be left with the other £2000 back in your hand.
The "subscription shares" or whatever your broker calls them, therefore have some inherent option value because you can use them to definitely get some new shares if you want them for 159p each. Whereas if Joe Bloggs down the road wants some too, he can merely put in an offer for £1000+ worth and see what he gets allocated, which might be a small fraction of his application, so he might apply for more than he wants, but then if it isn't oversubscribed and the price falls he will be stuck with more than he actually wants.0 -
From the shareholder's point of view, this is how I have always thought subscription shares work.
- You will receive 1 subscription share for each 22 ordinary shares you hold.
- Each sub share can be exercised at a cost of £1.59 to give you 1 ordinary share. (Therefore subscription share will have an approx value of Ord share price - £1.59)
You have 3 options with your subscription shares:
1. Do nothing, the sub shares will lapse and you will get nothing. (I am not 100% sure on this)
2. Sell the sub shares. (approx value above)
3. Exercise the sub shares at £1.59 each and in return receive Ord.
When I worked in stockbroking I remember a phrase along the lines of 'Dovetailing', this is where you sell enough of your subscription shares to exercise your remaining subscription shares so you don't need to cough up any new cash.. Someone might correct me on the name of this though!"If you aren’t willing to own a stock for ten years, don’t even think about owning it for ten minutes” Warren Buffett
Save £12k in 2021 - #027 £15,268 (76%)0 -
I've chosen option two (as per OP), thanks all.'We don't need to be smarter than the rest; we need to be more disciplined than the rest.' - WB0
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I've been looking to add this IT for a while for a long term hold. Any thoughts on buying into this now with the recent drop and premium down?0
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I have this in one of my income funds, and suffered the drops, but the absolute share price is not a great concern to me as long as the dividend continues. It went ex-div on 01/03/18 with the dividend unchanged from the 1.96p of the last 2 quarters. Going forward there are some headwinds, e.g. the Carillion mess and Stella Creasy's threat to impose a windfall tax on it. I am less concerned with Labour's threat to take some of the PFI back in house as I feel they will have many higher headline priorities but who knows. If you want income from a different asset class it might be worth a look, it hasn't traded at a discount for nearly a decade,0
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Infrastructure ITs are a bit of a quandary.
What you are buying is a right to an income for a fixed period, meanwhile the capital value is reducing to zero.
That's not to say that they should not be part of a portfolio and the yields are good in spite of the premium.0 -
Thanks for the information much appreciated. I hold the first state infrastructure fund and as part of a different asset class in my income focused part was looking at this IT along side it. The premium was always very high so was thinking after recent events to buy into it to hold a long with First State.
It would be part of wider overall holdings.0 -
takesyourchances wrote: »Thanks for the information much appreciated. I hold the first state infrastructure fund and as part of a different asset class in my income focused part was looking at this IT along side it. The premium was always very high so was thinking after recent events to buy into it to hold a long with First State.
It would be part of wider overall holdings.
Have you looked at 3i infrastucture IT - its currently trading at a discount and they have announced a special dividend payment of 41.40p on the ex div date of 15 March? The yield is slightly less than HICL but the performance growth figures are far better.0 -
Have you looked at 3i infrastucture IT - its currently trading at a discount and they have announced a special dividend payment of 41.40p on the ex div date of 15 March? The yield is slightly less than HICL but the performance growth figures are far better.
Thanks for that, I'll take a look at 3i I had not considered it and would be ok with slightly less yield for possible better growth prospects. I would like another holding in the asset class to vary it from first state so will certainly take a look at 3i thanks.0
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