thomas2017 wrote:Sorry to ask I seem to be at a loss of what to do.
I have the rights now in my account the price is about 125p, SMDS is about 480p. Thats closing prices today. To buy the rights I have to pay 530p a share. They had a high today of 144p for the rights and 493p for the main share. The value of my holding if I don't take the rights is reduced by 3/11.
Can someone explain how this all works out please?
To correct some possible misunderstandings, etc:
* There is no point at which the value of your SMDS shareholding either has dropped or is expected to drop by 3/11ths. The only way the fraction 3/11ths enters into it is that the number of SMDN rights you received was 3/11ths of the number of SMDS shares you had when they went ex-rights, rounded down if it doesn't come out as a whole number. (That rounding down won't occur on an account that supports fractional shares, but most don't.)
* When the SMDN rights were split off from the SMDS shares (which happened overnight between Monday and Tuesday this week), the value of your holding of SMDS shares dropped, but at the same time you got a holding of SMDN rights that was worth about the amount of the drop ("about" simply because the market values of all holdings are constantly fluctuating). For instance if you had 1100 SMDS shares at the close on Monday, and therefore 1100 SMDS shares and 300 SMDN rights at the opening on Tuesday, your SMDS holding would have been worth 1100 * 518.2p = £5,700.20 at the Monday close, while it was worth 1100 * 482.5p = £5,307.50 and your SMDN holding worth 300 * 132.76p = £398.28 at the opening on Tuesday, totalling £5,705.78. So overall, it would have gained £5.58 overnight, or slightly under 0.1% - but of course changes (in both directions) of that sort of size are always happening, including overnight between the close one day and the opening the next.
* That's the
only unusual reduction in the value of your existing SMDS shareholding you should expect from the rights issue - i.e. there's nothing more to be expected, other than normal share price fluctuations and any changes you make by buying or selling shares (including taking up your rights).
* The price to take up a right is 350p, not 530p - almost certainly just a typo, but an important one!
As you observe, the market prices are currently (at the close on Wednesday) 125p for a SMDN right and 479.7p for a SMDS share. So at present, you can acquire an extra SMDS share
either by paying 479.7p for it on the market
or by taking up a right, which basically uses a right as part-payment for the share and adds 350p as the balance of the payment required, for a total cost of 125p + 350p = 475p. The latter is slightly cheaper, especially as it doesn't attract stamp duty (about another 2.4p per share) and most brokers don't charge any sort of commission or other fee for taking up a rights issue, so it is currently the way to go
if you want more SMDS shares for your HYP at about the current market price.
But it's only
slightly cheaper, so it's unlikely to make any real difference to whether you do want the extra SMDS shares for your HYP. And the underlying market price difference could just as easily be slightly in favour of buying the shares on the market once you actually get the opportunity to trade again after the market opens, though the savings in stamp duty and (probably) commission should always be in favour of taking up the rights. But all these slight differences aren't worth spending a great deal of thought on: one very rarely buys shares for one's HYP at
exactly the price one used in one's planning, so why should this occasion be any different?
So my suggestion is that you simply decide whether you want more SMDS shares for your HYP at the current market price, and if so, how many. If you do, get them by taking up the appropriate number of rights (or by taking up all your rights and making an additional market purchase if you want more shares than you have rights): it might not be the cheapest route, but the odds are that it is because of the stamp duty / commission savings.
If you have any rights left over after doing that, you have the choice of selling them or letting them lapse. If you let them lapse, you can expect to get a lapsed-right payment from the company, which will be about what they could have been sold for shortly after the rights issue closes if there were still a market for them at that point (*). The result is that if the share price rises significantly between now and the rights issue closing, it will be better to let them lapse; if the share price falls significantly between now and the rights issue closing, it will be better to sell them; if it neither rises nor falls significantly between now and the rights issue closing, there will be little difference - but I would generally expect what difference there is to be in favour of letting them lapse in the case of individual shareholders, as the value of the rights that might be sold will generally be quite low, making the percentage effect of the selling commission quite high.
So my rule of thumb for dealing with this rights issue (and highly probably any other) is that once the shares have gone ex-rights, I should:
1) Decide whether I want more shares for my HYP at the current market price, and if so, how many.
2) Acquire as many shares as I want (possibly zero!) by taking up rights (preferably) and buying shares on the market (if necessary).
3) If I have rights left over, let them lapse unless
either I need the cash now (e.g. to fund taking up some of the rights)
or I strongly expect the shares to fall significantly before the rights issue closes (which I very rarely do, as it involves short-term prediction of market price changes). In either of those two cases, sell the rights instead of letting them lapse.
FWIW, SMDS was 37th out of 38 shares in the top-up order for my HYP when I last checked, a couple of weeks ago. I need to bring the spreadsheet up to date, but if it looks anything like that when I do, my decision will be that I don't want any more shares at the current market price, don't have any urgent need for the cash and don 't have any particular short-term views on where the share price is going, so I'll let all the rights lapse. That decision
might change if something I'm not yet aware of has markedly changed the top-up order, or if a check of the CGT consequences says that there's a problem to be avoided.
CGT consequences of rights issues are something I haven't gone into above, but briefly: they're usually quite simple, but they're significantly messier if the rights produced by non-tax-sheltered SMDS shares are worth more than
both £3,000
and 5% of the value of the shares that produced them. In this case, the rights produced by shares seem to be worth about 7% of the value of the shares that produced them, so the complications will kick in if the rights produced by non-tax-sheltered SMDS shares are worth more than £3,000. With the rights price at 125p, that means if one has more than about 2400 rights produced by such shares, or more than about 8800 non-tax-sheltered SMDS shares. The "about"s in that are because market price changes can alter whether the £3,000 limit is exceeded - and indeed, that produces a third reason why one might want to sell rights rather than let them lapse, namely if one wanted to make certain the limit was not exceeded even if prices were to rise.
(*) More exactly, it will be the share price minus 350p and the company's selling costs shortly after the rights issue closes. Since the rights price can generally be expected to be the share price minus 350p, plus or minus a little bit, what you can get for the rights is roughly the share price minus 350p and your selling costs at some time (of your choosing) before the rights issue closes.
Gengulphus