Rights issue- centrica share incentive plan can someone explain this please?

numpty2009

HI


My husband currently holds 1932 shares in centrica in the employee share incentive plan. centrica have recently issued a rights issue and they have sent us details of 3 options for this. I usually think myself to be fairly financially literate however, these have confused me entirely. Could someone please explain to me in laymans terms what they mean I would be very grateful.

The current Centrica share price is £2.68 valuing our shares at £5177. These are held in a SIP plan and usually have a 5 year hold on them to prevent us selling without huge tax issues (husband is higher rate tax payer).

Centrica have offered a 3 for 8 rights issue?? provisionally allocating us 724 shares at the rights price of £1.60. if we want to buy these rights we need to pay £1158.40

We can either take up the rights in part (the default option) which they say they will sell our rights that they need to and give us what is left at what ever the market price. The shares we are given will apparently be under the same SIP terms.

We can pay the £1158 to take up our rights.

Or we can sell the rights with no tax implications. Does this mean our current share holding or just the 724 we have been offered. Apparently we will be sent a cheque in december.

If anyone could explain this further or offer an idea as to which one might be the best option I would be grateful.

Blah99

If you can afford the £1158, pay it and take up your rights.

Scrapper

numpty2009 wrote: »

HI


My husband currently holds 1932 shares in centrica in the employee share incentive plan. centrica have recently issued a rights issue and they have sent us details of 3 options for this. I usually think myself to be fairly financially literate however, these have confused me entirely. Could someone please explain to me in laymans terms what they mean I would be very grateful.

The current Centrica share price is £2.68 valuing our shares at £5177. These are held in a SIP plan and usually have a 5 year hold on them to prevent us selling without huge tax issues (husband is higher rate tax payer).

Centrica have offered a 3 for 8 rights issue?? provisionally allocating us 724 shares at the rights price of £1.60. if we want to buy these rights we need to pay £1158.40

We can either take up the rights in part (the default option) which they say they will sell our rights that they need to and give us what is left at what ever the market price. The shares we are given will apparently be under the same SIP terms.

We can pay the £1158 to take up our rights.

Or we can sell the rights with no tax implications. Does this mean our current share holding or just the 724 we have been offered. Apparently we will be sent a cheque in december.

If anyone could explain this further or offer an idea as to which one might be the best option I would be grateful.

A Rights Issue gives you the right to buy the 724 shares you are being offered. Usually shares offered in a Rights issue are offered at a price below the current share price. If you think Centrica is a good investment (ie its shares will go up) pay the £1158 and buy the 724 shares.

If you don't think Centrica is a good investment, let the Rights lapse, the 724 Rights will be sold and you will get the proceeds, but be aware it will not be 724 x £1.60, it will be 724 x whatever the Right to buy a Centrica share is worth - at a guess well under £1. (Whoever buys the Rights has to pay for the Rights plus £1.60 for each share.)

Your basic holding of 1932 shares is not affected whichever way you go.

Pssst

As i guide,i have a right to buy an extra approx 2500 shares. My cheque is in the envelope and being posted tomorrow. Centrica is a solid company is this appears to be a no brainer.

earlgrey_3

Pssst wrote: »

As i guide,i have a right to buy an extra approx 2500 shares. My cheque is in the envelope and being posted tomorrow. Centrica is a solid company is this appears to be a no brainer.

You're increasing your existing investment in a company by £4000.00. How could it be a 'no brainer'?

If you think you're getting something for nothing then you've misunderstood what a rights issue is. Also it never makes sense to take up a rights offer sooner than you need to.

numpty2009

Hi

Thanks for the replies, it has helped clear up and confirm my slightly muddled thoughts.

Unfortunately we don't have the £1100 cash at the moment so unless we make an effort to find it our options are to sell the rights, or do what they say is take up the rights in part. This is when we get whatever is not sold as a right to others. Anyone know if we should sell the rights or take them up in part?

Many thanks

Helena2_2

The details I received do not say that the default option is to take up the rights in part. It says I need to contact a stockbroker if I wish to do this.

In my wisdom I bought into the HBOS rights issue so I am somewhat reluctant to fork out for this one .. good as it may be.

How do I contact a share dealing service & what are they likely to charge?

steveksullivan

I too have the offer and have similar 'muddied' thoughts!!

At first sight with the share price sitting around £2.60ish an offer of shares for £1.60 would seem to be good.

But will the addition of the new share issue dilute the value of existing shares and therefore make the offer 'less' attractive ?

Also, I'm assuming the offer is for the same 'ordinary' shares as we currently hold - I am aware that one company can issue different classes of share at different values but can see no mention of this in the documentation....

Crocsfan

ok... some hopefully helpful info.

Centrica shares have now gone ex-rights (as of y'day), therefore anyone who buys shares now will not have the option to buy the additional shares under the rights option.

When this happened (Monday morning) the shareprice was re-adjusted to take into account the additional shares that are being released (price was re-adjusted down by just over 30p). You may not have noticed this as the whole market surged yesterday and Centrica shares made up this re-adjustment during the day.

The rights option is giving you the option to buy additional shares at a discount £1.60 instead of the current price of £2.70 ish.

If you take up this option it will cost you number of shares you has on am of the 24th Nov divided by 8 times by 3 and then the rounded down whole number times by £1.60 - this is option 2 on the SIPs form.

If you take option 1, which is called tail swallowing, the Trustees will sell a enough of your shares to enable you to buy up the remaining rights. This will cost you nothing in sharedealing. And your overall Centrica holding should remain roughly the same (in £).

If you don't want to take up any rights Option 3, then the rights will be sold and you will receive the proceeds from this sale in December. The proceeds will be sale price of shares - £1.60 (so assuming £2.70, you will get £1.10 per share)....again no sharedealing costs BUT you will dilute your shareholding in the company.

Personally, I would go for either 1 or 2. You need to hurry with the SIP form as it has to be with Equiniti by 3rd Dec. If you want to take option1 you DON'T need to return the form as this is the automatic option.

Hope this helps!

div_ad

Thanks to all. This is helpful and I think I will be tagking up the rights. I can afford it at present and in the long run methinks it should be a good bet.

Is it me or are the forms for these things (let alone the prospectus) really complicated. I have a degree and hold down a responsible job and I don't think I'm stupid by any means and I'm still not sure I have filled the form in right.

Also the form I have gives me 5 options and the buy option is number 1 and the date for acceptance is 8 December. I take it the employee option in the question is different?

david