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  • FIRST POST
    • JohnRo
    • By JohnRo 28th Feb 17, 1:30 PM
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    JohnRo
    HICL infrastructure co ltd - sub shares
    • #1
    • 28th Feb 17, 1:30 PM
    HICL infrastructure co ltd - sub shares 28th Feb 17 at 1:30 PM
    This is a first for me. Can someone help me decipher this, my understanding is that there is no expiry date.

    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
Page 1
    • jimjames
    • By jimjames 28th Feb 17, 2:11 PM
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    jimjames
    • #2
    • 28th Feb 17, 2:11 PM
    • #2
    • 28th Feb 17, 2:11 PM
    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.
    • bowlhead99
    • By bowlhead99 28th Feb 17, 6:46 PM
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    bowlhead99
    • #3
    • 28th Feb 17, 6:46 PM
    • #3
    • 28th Feb 17, 6:46 PM
    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.
    • george4064
    • By george4064 28th Feb 17, 7:01 PM
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    george4064
    • #4
    • 28th Feb 17, 7:01 PM
    • #4
    • 28th Feb 17, 7:01 PM
    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 arenít willing to own a stock for ten years, donít even think about owning it for ten minutesĒ Warren Buffett

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    • JohnRo
    • By JohnRo 28th Feb 17, 7:14 PM
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    JohnRo
    • #5
    • 28th Feb 17, 7:14 PM
    • #5
    • 28th Feb 17, 7:14 PM
    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.' - WB
    • takesyourchances
    • By takesyourchances 6th Mar 18, 10:42 AM
    • 620 Posts
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    takesyourchances
    • #6
    • 6th Mar 18, 10:42 AM
    • #6
    • 6th Mar 18, 10:42 AM
    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?
    • ColdIron
    • By ColdIron 6th Mar 18, 1:37 PM
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    ColdIron
    • #7
    • 6th Mar 18, 1:37 PM
    • #7
    • 6th Mar 18, 1:37 PM
    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,
    • le loup
    • By le loup 6th Mar 18, 1:37 PM
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    le loup
    • #8
    • 6th Mar 18, 1:37 PM
    • #8
    • 6th Mar 18, 1:37 PM
    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.
    • takesyourchances
    • By takesyourchances 6th Mar 18, 2:44 PM
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    takesyourchances
    • #9
    • 6th Mar 18, 2:44 PM
    • #9
    • 6th Mar 18, 2:44 PM
    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.
    • ArchBair
    • By ArchBair 6th Mar 18, 2:57 PM
    • 95 Posts
    • 34 Thanks
    ArchBair
    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.
    Originally posted by takesyourchances
    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.
    • takesyourchances
    • By takesyourchances 6th Mar 18, 3:33 PM
    • 620 Posts
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    takesyourchances
    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.
    Originally posted by ArchBair
    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.
    • MonroeM
    • By MonroeM 6th Mar 18, 4:14 PM
    • 148 Posts
    • 43 Thanks
    MonroeM
    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,
    Originally posted by ColdIron
    Would you mind me asking if you prefer to hold HICL in preference to 3i purely because of the higher yield of 5.5% compared to 4%?
    • TCA
    • By TCA 6th Mar 18, 4:17 PM
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    TCA
    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?
    Originally posted by ArchBair
    I had looked at this one, 41.4p being a tasty 21% on the current share price. Although that looks great, the EGM on the 14th March at which it'll get voted through, also has a vote on a share consolidation (dilution), reducing investors' holdings in the ratio of 15 shares for every 19 shares held, which is of course also 21%:

    https://www.3i-infrastructure.com/media/3410/21715_3i_infra_egm_nom_2018.pdf

    So you'd potentially be getting taxable dividends in return for a drop in capital value.
    • Voyager2002
    • By Voyager2002 6th Mar 18, 4:42 PM
    • 12,074 Posts
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    Voyager2002
    So you'd potentially be getting taxable dividends in return for a drop in capital value.
    Originally posted by TCA
    Indeed: essentially it is going to be a share buyback in all but name. So need to check whether you would pay tax on the special dividend, in which case it would probably not be a great idea.

    On the comparison between HiCl and 3I, it makes sense to look at the portfolio (rather difficult since there have been big changes since last March, and yet Morningstar and so forth tend to give portfolio data from then). HiCl is big in PPP, yet these account for just 9 per cent of 3I's holdings. 3I has moved into renewable energy in a big way, owning two companies (that have just merged) that generate electricity from the gases produced by rubbish dumps and old coal-mines. And they have significantly increased their stake in a company that provides mobile phone signals and the infrastructure for w-fi.
    • MonroeM
    • By MonroeM 6th Mar 18, 4:59 PM
    • 148 Posts
    • 43 Thanks
    MonroeM
    3i has also not traded at a discount for a long time so it may be worth a small investment. Also, I personally would not have to pay tax on the special dividend. Another reason, is that 3i will not be affected as much as HICL if a Labour government takes back PFI in house.
    • ColdIron
    • By ColdIron 6th Mar 18, 5:15 PM
    • 4,153 Posts
    • 5,241 Thanks
    ColdIron
    Would you mind me asking if you prefer to hold HICL in preference to 3i purely because of the higher yield of 5.5% compared to 4%?
    Originally posted by MonroeM
    The higher yield was an important factor but my decision was not based purely on that. It's part of one of my income portfolios, I was, and still am, attracted to the government backed and index linked nature of its assets. 3IN has a different business model with better long term growth prospects in exchange for lower yield but I have separate portfolios for growth
    • Voyager2002
    • By Voyager2002 6th Mar 18, 5:15 PM
    • 12,074 Posts
    • 8,214 Thanks
    Voyager2002
    3i has also not traded at a discount for a long time so it may be worth a small investment. Also, I personally would not have to pay tax on the special dividend. Another reason, is that 3i will not be affected as much as HICL if a Labour government takes back PFI in house.
    Originally posted by MonroeM
    That was precisely my reasoning for buying five grand's worth yesterday. When I last checked I had lost just five pounds.
    • takesyourchances
    • By takesyourchances 6th Mar 18, 5:47 PM
    • 620 Posts
    • 391 Thanks
    takesyourchances
    I have looked as suggested into 3i it is not purely yield I am after, so would be happy for less yield than HICL for the possibily of growth long term as well. I would be in favor now of 3i to go along with my holding in First State. Thanks for the information everyone, good to get some interest going here on infrastructure investments.
    • dividendhero
    • By dividendhero 6th Mar 18, 6:00 PM
    • 201 Posts
    • 180 Thanks
    dividendhero
    I'm a fan of infrastructure funds and hold both HICL & 3IN.

    One question I'm not sure about - what happens to the asset at the end of the PFI contract? I believe it goes back to Government, be it local govt, NHS etc at nil value - but this is depreciated over lifespan of the asset so should be no impact on share price?
    • MonroeM
    • By MonroeM 6th Mar 18, 7:51 PM
    • 148 Posts
    • 43 Thanks
    MonroeM
    That was precisely my reasoning for buying five grand's worth yesterday. When I last checked I had lost just five pounds.
    Originally posted by Voyager2002
    That's exactly the same amount as I have decided to invest in 3i.
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