Barclays Rights Issue

PippiShortsock

There may be no answer to this one without a crystal ball but, just in case...

I hold about 13,000 Barclays shares in my capacity as executor for my late uncle. I am going to have to sell these shortly to pass cash to the beneficiaries as none of them wish to receive shares. Are the proceeds likely to be higher if I sell the rights and the shares or if I take the rights up and then sell all the shares?

Ark_Welder

PippiShortsock wrote: »

There may be no answer to this one without a crystal ball but, just in case...

I'd already started on the following examples using the previous poster's figures, but the same principle applies to larger holdings - except that CGT might apply to selling.

+++

Assuming 1185 shares are held priced at 297, their current value is £3519.45. Also assume that £580.55 in cash is held, so the investor's current 'wealth' is £4100.00

[B]Taking up entitlement in full[/B]

[FONT=Courier New]Current value of 1185 shares @297:     £3519.45
Cost of taking up rights, 296 @185:    £ 547.60
                                       ========
Total outlay:                          £4067.05

Value of shares, 1481 @274.6:          £4066.83
Residual cash, 580.55 - 547.60:        £  32.95
                                       ========
Subsequent investor wealth:            £4099.78

[/FONT]So a 22p loss due to the entitlement being rounded
down to 296 shares.

[B]Taking up entitlement in full, selling new shares once received.
[/B]
[FONT=Courier New]Current value of 1185 shares @297:     £3519.45
Cost of taking up rights, 296 @185:    £ 547.60
                                       ========
Total outlay:                          £4067.05

Value of shares, 1481 @274.6:          £4066.83

Proceeds from sale, 296 @274.6:        £ 812.82
Holding after sale, 1185 @274.6:       £3254.01
Residual cash, 580.55 - 547.60:        £  32.95
                                       ========
Subsequent 'wealth' of investor:       £4099.78
[/FONT]

[B]Selling nil paid rights.[/B]

[FONT=Courier New]Estimated price of nil-paid rights, 274.6 - 185 = 89.6

Value of ex-rights shares, 1185 @274.6: £3254.01
Proceeds of sale of rights, 296 @89.6:  £ 265.22
Cash still held:                        £ 580.55
                                        ========
Subsequent 'wealth' of investor:        £4099.78
[/FONT]

In theory, allowing the rights to expire ought to provide the same result as a sale, but this does rely on the bookrunners being able to find a buyer for them at that time, and also relies on prices remaining as they are now.

However, none of the examples include transaction costs, which would occur for a sale of either shares or the nil paid rights. There may also be a broker charge for taking up the rights - check any charges for corporate actions.

And all of the above assumes that prices will not change, which is just not going to happen out in the real world. Also assumed is that the ex-rights share price falls exactly to the current theoretical price, whereas the actual price can still differ from this due to investor demand for them at the time.

PippiShortsock wrote: »

I am going to have to sell these shortly to pass cash to the beneficiaries as none of them wish to receive shares.

Personally, I would sell the shares now at a known price rather than wait: not sure what CGT liability might apply to your case, though. There is a possibility that some holders of existing shares could sell down their holding before the ex-rights date with the intention of using the funds raised to purchase their new share entitlement. Perhaps a similar situation with the nil paid rights, post the ex-rights date: sell enough of them to buy their remaining entitlement. But without the crystal ball, it is impossible to say that the price of the shares - with or without the rights - won't rise afterwards.


+++

[Edit] OK. Not strictly 'fiscally neutral' because anyone that does not take up their rights in full will end up with a diluted holding in the company and this could result in the equivalent to a cut in the dividend: if the total amount of the dividend were to remain the same, pre and post the fund raising, then it would be spread across an increased number of shares, resulting in a lower dividend per share after the rights issue is over.

PippiShortsock

Many thanks to Ark Welder for the detailed analysis which, I think, demonstrates that its six of one and half a dozen of the other...

CGT is indeed an issue for me and I understand I need to arrange for a memorandum of appropriation before I can sell as one beneficiary is a charity. The timing is all feeling a bit inopportune!

grizzly1911

Second interim dividend due 13/9 on existing basis.

Any news on dates for the rights issue?

Ark_Welder

grizzly1911 wrote: »

Second interim dividend due 13/9 on existing basis.

Any news on dates for the rights issue?

Shares will trade ex-rights on Monday

http://www.londonstockexchange.com/exchange/news/market-news/market-news-detail.html?announcementId=11698820

When it's published, the relevant prospectus is likely to be found at http://group.barclays.com/about-barclays/investor-relations/investor-news

ffacoffipawb

Ark_Welder wrote: »

Shares will trade ex-rights on Monday

http://www.londonstockexchange.com/exchange/news/market-news/market-news-detail.html?announcementId=11698820

When it's published, the relevant prospectus is likely to be found at http://group.barclays.com/about-barclays/investor-relations/investor-news

Ex rights on Wednesday 18th, so not sure about the relevance of the record date of Friday 13th. If you sold today you would not be entitled to the rights, despite this being after the record date.

Ark_Welder

ffacoffipawb wrote: »

Ex rights on Wednesday 18th, so not sure about the relevance of the record date of Friday 13th. If you sold today you would not be entitled to the rights, despite this being after the record date.

Thanks. Investors on the register on Friday are entitled to the rights, which is why I'd expected them to be XR today. Good thing I don't hold them...!

Update + timetable: http://www.londonstockexchange.com/exchange/news/market-news/market-news-detail.html?announcementId=11710327

Nanpy

So I had half an eye on this over the past couple of weeks but I think it's clear in my head now.

I hold some BARC in an ISA with Hargreaves Lansdown. Today my BARC shares dropped about 500 quid and I got about 500 quid of BARN shares.

The BARN shares give me the right to buy BARC shares at a price of £1.85 or I can immediately sell the BARN shares. It really is six of one and half dozen of the other. However, if I sell the BARN shares I'm left with about £500 in my ISA which is a kinda fiddly amount to re-invest in shares without losing out on commissions etc. - yes, I know, first world problems.

To take up the rights issue I need to have the money free in my ISA so I'd need to find something to sell off, which is also something I'm not keen on. Or I can take up the rights issue outside my ISA, which again would leave me with a "small" amount of shares to administer.

Hmm.

Assuming BARC was just going to stay on an even keel for the foreseeable future, then there would be a slight advantage to taking up the rights issue compared to selling the rights, right? It's about 95p per BARN share, right now, plus 185p to purchase a full share - so £2.70 cost vs current price of £2.80.

For the rights issue to be really attractive I need to assume that the current BARC price of around 280p will increase. Now if I was certain of that (I kinda am), then I'd be buying more BARC anyway, right? But by taking up the rights issue I'm buying new shares off Barclays, and giving them the money for their mandated increased capital reserves.

Am I right so far?

Just working this through in my rambling way on the off-chance it makes it clearer to anyone else.

monica_3

I sold all nil paid shares this morning at 92.75. The nil paid shares have dropped since then. Would have got 530 shares if I had tail swallowed this morning. This way all the money from the nil paid shares will be sitting in my account from Monday and if ordinary shares drop to £2.50 will be able to buy back 600 shares! Anyone selling nil paid shares should probably sell quickly I am told because the price will continue to drop so I am told.

Ark_Welder wrote: »

Entitlement is one new share for each four held on the ex-rights day. So your entitlement will be 296 ( = 1185 / 4, rounded down).

New shares are priced at 185p, so cost of taking up entitlement in full would be £547.60. However, you should not have to take all of them up if you do not want them, you could take up just some of them if you only wanted another £200's worth, for example.

Based on yesterday's close of 297p, the theoretical ex-rights price is 274.6. So the price of your existing shares would fall to this if Monday was the actual ex-rights date:

[FONT=Courier New]4 x 297 = 1188  : 4 existing shares
1 x 185 =  185  : 1 new share
          ====
          1373  : total price of 4 existing and 1 new share

1373 / 5 = 274.6  : [/FONT][FONT=Courier New][FONT=Courier New]ex-rights [/FONT]price at which shares should trade 
[/FONT]

In theory, whatever action you decide upon should be financially neutral to you. In practice, price movements after the ex-rights date and transaction costs will affect the outcome (costs would be for selling either the nil paid rights or the new shares once received, and your broker might have a corporate actions charge for taking up the rights).

[edit]
In additional practice, the fact that entitlement has to be rounded down to a whole number of shares can mean that holding a number of shares that is not divisible by 4 can result in the loss of around a quid or so (in this specific case, 4 being the 1:4 entitlement).

Doshwaster

Just got the paperwork in the post from my HBSC investment account his morning. My nil paid rights are currently showing as being 95.75p. I haven't decided what to do what yet but I suspect I'll take up the rights. I just need to have a strong cup of tea while I think about it.