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    • sorcerer
    • By sorcerer 6th Feb 18, 1:07 PM
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    sorcerer
    Subscription Shares
    • #1
    • 6th Feb 18, 1:07 PM
    Subscription Shares 6th Feb 18 at 1:07 PM
    One of my shares is doing a subscription share offer, they are offering sub shares at 108p. As far as I understand it, this makes sense if the share price is going up, as I can convert the shares to normal shares later, and I would have paid 108p.


    However if the price goes down, the shares could become illiquid and nobody will want to buy them off me, so they are worthless, because it would be cheaper to buy on the market.


    The current price on the market today is 108.50p. Does this sound about right or have I misunderstood something?
Page 1
    • sorcerer
    • By sorcerer 7th Feb 18, 12:56 PM
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    sorcerer
    • #2
    • 7th Feb 18, 12:56 PM
    • #2
    • 7th Feb 18, 12:56 PM
    Any Ideas?
    • bowlhead99
    • By bowlhead99 7th Feb 18, 1:07 PM
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    bowlhead99
    • #3
    • 7th Feb 18, 1:07 PM
    • #3
    • 7th Feb 18, 1:07 PM
    I think you have misunderstood it.
    Is it THRL by any chance?

    Basically they are looking to raise money to support their pipeline of investments and are giving existing shareholders a right of "first refusal" on the raising of new funds. You'll have been allocated a certain number of "subscription shares" giving you the right to subscribe for a new issue of shares being issued on the issue date which are just like the shares you already have, at a price of 108p with no stamp duty or dealing costs.

    If you want more than that amount of shares, you can apply to buy extra as well, but your application for excess new shares (rights that weren't taken up by other existing shareholders) might be scaled back if there is a lot of demand. Then there is probably an open offer to apply for as many as you like, but again you might be scaled back.
    The final option is to just buy them at the open market price where buy price will be higher than mid price or bid price and you will have dealing costs because your broker has to match your buy with someone else's sell
    • sorcerer
    • By sorcerer 7th Feb 18, 3:15 PM
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    sorcerer
    • #4
    • 7th Feb 18, 3:15 PM
    • #4
    • 7th Feb 18, 3:15 PM
    Yes it is THRL, are these shares not held as a separate share class as such, because I noticed my broker has two new Target Health Care in my portfolio, both say 0 as the moment.

    The only cost would be the dealing cost on the open market , so no stamp duty to pay. So if the price drops to say 105p for example, would it not be better to just buy them on the open market?

    I have also found in the past that after a right's issue the price drops anyway, so I end up paying less for the shares.

    Link below from AIC on the definition.

    https://www.theaic.co.uk/glossary/subscription-shares
    Last edited by sorcerer; 07-02-2018 at 3:26 PM.
    • bowlhead99
    • By bowlhead99 7th Feb 18, 4:39 PM
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    • #5
    • 7th Feb 18, 4:39 PM
    • #5
    • 7th Feb 18, 4:39 PM
    Yes they are flagged by your broker as separate instruments so the fact that you have these rights can be tracked.

    Unlike the actual shares you have, these are simply rights to participate in the fundraising. They have zero cost because you haven't paid for them. If you don't use them they will be worthless. You can use them if you want, or not if you don't.

    One is the right to buy into the new issue of shares at the offer price without having to buy them on the open market. One is a right to buy some shares that the other right to buy people didn't want, but you may be scaled back depending on demand. There may also be a general offer to the public that may be scaled back depending on demand, but that won't appear as a line on your broker statement if it's a public offer and not a special set of rights just for you.

    As you have seen, the fact that they announced that they wanted to raise 150m (quite a lot in the context of find size) and that these shares would be available at 'only' 108p, has caused the price to fall down towards 108p because existing holders can increase their holdings substantially without needing to pay over 108p in the market. The subscription opportunity is not a complete giveaway because it's still at a price that exceeds the 3/12/17 NAV, so you will not lose value from the dilution if you choose not to participate - you just miss a potential opportunity.
    So if the price drops to say 105p for example, would it not be better to just buy them on the open market?
    Yes, it would. If you were wanting to buy millions you would probably struggle to get that volume on the open market though.
    I have also found in the past that after a right's issue the price drops anyway, so I end up paying less for the shares.
    It is generally going to have the effect of suppressing value because there are now a whole load of people who do not need to go to the open market of over the coming weeks to buy shares - lowers market demand. And there will be lots of people who will buy in in at 108p and be happy to dump them in a quick sale at 108p++. So it has the effect of both reducing demand and increasing supply of the shares, which can suppress the share price for a bit before it bounces back to 110p+ or whatever the fair market value would haven without the fundraising offer.
    • sorcerer
    • By sorcerer 7th Feb 18, 4:51 PM
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    sorcerer
    • #6
    • 7th Feb 18, 4:51 PM
    • #6
    • 7th Feb 18, 4:51 PM
    Very interesting, thank you Bowl Head. I think I will have just about enough cash to meet the 2000 shares minimum in the account. But I think I might give this one a miss. And just hold on to the shares I have. It might work out, it might not.
    • bowlhead99
    • By bowlhead99 7th Feb 18, 6:18 PM
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    • #7
    • 7th Feb 18, 6:18 PM
    • #7
    • 7th Feb 18, 6:18 PM
    You may misunderstand the "2000 shares minimum".

    Depending how your broker is administering your entitlements, you probably have:

    X) a 'basic entitlement' to apply for up to x shares based on how many shares you currently own. They set your entitlement at two shares for every eleven you already own.

    For example if you own about 3000 real shares they will have given you something like 500 'subscription shares' so you have the right to apply for between 1 and 500 shares ; you can let the rest of your rights expire if you don't want them. If you like, you can apply for 150 shares and ignore the other 350 they offered. There is no minimum and you should get as many as you ask for, up to your basic entitlement. It is not an official "rights issue" where you can sell your unused rights to someone else for money. Just think of it as an entitlement to get first dibs on x shares if you want them.

    You also have

    Y) an 'excess entitlement' to apply for up to y shares based on how many shares you currently own. For example if you own about 3000 shares you can apply for something like 300,000 new shares. This is your chance to apply (if you've already taken your basic entitlement) to also take up the slack from the rights of all the other existing investors who didn't want to take up their full rights in x above (e.g. the people who only want 150 of the 500 they were offered).

    Again there is no minimum - you are offered the opportunity to elect to apply for between 1 and 300,000 shares but if you apply for all 300,000 you are likely to get a lot less than that and if you applied for just 1 share they might round you down to 0. Similarly if you just apply for 1000 here you will likely get less than that but more than 0 as there are bound to be *some* entitlements that other people don't take up so they will have some excess to allocate out in proportion to how many each of their existing investors apply for.

    Then there is

    Z) the general offer for subscription. Above the amount you wanted under the basic entitlement and excess entitlement, you can apply for more here. If there are some spare, they'll let you have them. You might want to apply for some here if you're assuming you won't get allocated as many under Y as you really want. You don't have to apply for any 'general subscription' shares. But if you do, they don't want to be messing around with a few shares here or there, so you must apply for 2000 minimum and then 1000 increments.

    Personally I will probably only apply for 3-400 of my basic entitlement in one account and about 50 of my basic entitlement in another account. That's not my full entitlement, just amounts based on what cash I have available on those accounts and am willing to stick into THRL at this time. I can't spare it the cash to do 2000 minimum, so I won't do that, and I don't have to.
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