Member Info for Hexam

Stumpy - All my examples assume the lower TERP (£7.30 odd). Using the higher TERP on the link Golitha posted is hard to get one's head around but I think basically it should increase both the value of selling the rights and of taking them up. It also possibly creates a genuine 'something for nothing' benefit but I'm not convinced by this as it sounds too good to be true especially as the sp is very much going the other way!

I'm not sure why you are using 5.6 as this is not the TERP on the link that Golitha posted - that was about £8. Instead I think his £5.60 is an estimate of where the SP may fall to and again this is driven by sp sentiment not by the RI itself (though that of course is likely fueling sentiment). So the losses in that case are still market driven and will be suffered whether you take up the rights or sell them - just the first is on paper the second is partly in your pocket too.

Apologies if I have misunderstood you but I think it is getting very confusing and mixing up several things at once.

Yep Stumpy - that's it except that the numbers work out precisely if you use the exact prices so the RI itself is not creating a profit or loss so long as you take up your rights or sell them.

The loss you are talking about is due to the drop in sp further than the TERP suggests and if you sell the rights you are simply crystallising this loss in same was as any paper loss when the sp falls. If you take up the rights you still have this loss, just on paper.

Stumpy - What I meant (and clarified in my next post) was that if you don't take up the rights you must sell them instead. If you do neither, then yes you could miss out if your broker does not sell them anyway for you.

You are right that the sp has dropped but this is not because of the dilution effect it is because of the discount (which drops it as far as the TERP) plus the poor market sentiment on top. In terms of the discount this is not something you have got for nothing but is offset by the drop in sp (to the TERP) of your existing shares. You just need to make sure you retain this value by either taking up the rights or selling them.

Sorry DB - replied on wrong thread!

The TERP is indeed just over £8 if you allow for the sanctioned shares not taking part and £7.30 odd if not.

But as I say it makes the sp action since the RI even more baffling if the £8 is more appropriate - so are we still missing something???

donalb - that's really interesting as this suggests the TERP really is the higher of the two that I quoted earlier and in line with the method MikeS02 used. That makes the sp drop even more baffling though as we should be benefitting from the sanctioned shareholders inability to take part in the rights issue (as some others had already suggested).

It just seems too good to be true and at odds with what the sp has actually done!

iParsnip - the 'maths' means the drop in sp from £14 to the TERP (around £7.36) is expected and you haven't lost out as what you lost in the value of your shares you gain by the value of your rights. It is the fall since beyond that (in both the sp and the value of the rights) due to adverse sentiment that has caused the 30% or so loss.

So ignore the drop from £14 to £7.30 odd as that's just the maths playing out but the market reaction has been brutal and this is what has hurt us (since the RI was announced anyway)!

They are not allowed to for starters - too close to the detail so would be guilty of insider dealing if they bought or sold in these circumstances.

Just for clarity on my last post if you do decide not to take up all your rights please make sure you sell the ones you don’t take up before the deadline or else you risk losing them (as you’re dependent on the broker selling them for you which is not guaranteed).

Whether you take up the rights or sell them is your choice depending on your outlook and circumstances but doing nothing is to risk losing the value of the them completely.

The deadline varies by broker (most appear to be April 11th or 12th) - but check to make sure what yours is.

No worries ge0rge and iParsnip.

RIs are confusing but TUI have taken it to a different level. Not only is it in euros so adds FX rate and charges into the mix but there is the whole UK v German shares thing (which I admit I still can't get my head around) and then there is treatment of sanctioned shares. This last one is still not clear in its impact (to me at least) and has lead to different TERP answers. Btw I think it either around £7.36 or £8.11 depending on how it is allowed for (MikeS02 - your calc of £8.51 was the second of these except you used £1.8b as the new money but it's 1.8bn in Euros).

The thing that has astonished me though is the size of drop in sp way beyond the TERP (whichever one it correct). That can be best seen by comparing the value of your TUI holding now (value of shares PLUS value of rights) with the value of the shares before the RI. We have lost around 30% as the sp of £6.20 is equivalent to pre-rights price of about £9!

This might indicate TUI is particularly good value at the moment and so I'm tempted to take up the rights but I will probably still stick with tail swallowing as I'm already more exposed to TUI than I really want to be for my liking. Also as I keep stressing it is just an investment decision at the end of the day. The most common misconception about RI's is that the discount implies a bargain - it does not. It's just marketing smoke and mirrors to get people to take up the rights. So I wouldn't be 'missing out' by not taking up the rights (and don't have spare cash to hand anyway to take them all up)!

Instead I may invest a bit more in TUI after the RI completes if the sp drops even further (as the price often does after a RI closes).

@iParsnip - I'm not sure where the 88p comes from as I'm seeing 107p? Also I think the cost of new shares including charges is about 510p. If you have 1472 rights then I presume you have 552 shares (give or take a bit of rounding)?

If you do nothing you risk the rights lapsing and losing all the value of the rights i.e. 107p x 1472 = £1,575 and so are just left with 552 shares at the current sp. This may not happen as your broker may sell them for you anyway but it's not really worth taking the risk.

So if you don't want to take up any of the rights it is better to sell them all yourself and get the £1,575 in cash and still have the 552 shares.

Or you could sell some of the rights and take up the rest using the cash from those you sell. In your case and assuming 107p per right this means selling just over 1200 and getting about £1300 and using this to buy the remaining 250 or so rights. Of course you could sell 1000 and take up the remaining 472 or whatever - but then it won't be cashless (either you'll need to invest something or have some cash leftover depending on the split).

All these numbers will change though as the sp changes (except the cost of new shares as that price is fixed except for possibly the FX rate depending who you are with). The value you can sell the rights for will broadly be the sp - 510p.

But the key thing is do something as all the options have the same value except doing nothing where you risk losing the value of the rights.

And as it was a UT it also means there were 2m of sells at the same price.

“Who would be mad enough to sell ?”

I might sell, especially if the price recovers a bit, and I don’t consider myself mad. I’m exposed enough to TUI and don’t really want to increase my holding so may sell the rights or more likely tail swallow to maintain my holding.

It’s just a buy/sell decision like any other. Nobody is mad doing one or the other, just depends on their own particular circumstances and outlook.

"Dirky, I've also been keeping an eye on Tuib, but just for clarity, my understanding is that as this is on the secondary trading platform, it DOES NOT tie in with shares at all"

The price is related to the main share - it will trade at roughly sp - £5 as the £5 is roughly the price of the new shares if you exercise the right. So sp - £5 represents the value of the discount and also the value of the rights if you choose to sell. They can get out of step but if they do then this creates an arbitrage and so should quickly close again.

You can follow the price and trades here on LSE as it has its own page under TUIB.

The rights can be bought and sold and the price will simply move in line with the sp (roughly sp minus £5). They will cease trading after the RI is completed as they will no longer exist.

"I dont think selling your shares means you sell the equivalent number of rights."

Foxy - this is something different. All I am saying is that by taking up your rights in the example I gave doesn't mean you are magically gaining £1.20 per share. This is one half of the story. I could equally only quote the other half of the story and say everybody should sell their rights or else they are missing out on £1.20 in their pocket. The reality is though that the two halves offset each other.

If you buy new shares you are getting a discount of £1.20 for each right exercised i.e. for each new share bought but if you sold the rights instead you get £1.20 cash in your pocket for each right sold.

Of course the SP is still dropping so the £1.20 has now become £1.10.

The key thing is that we are not getting something for nothing but it is a common misunderstanding in RIs that we are.
The discount is just a marketing gimmick - not a freebie.

Put simply:

If you choose to sell normal shares at £6.20 you will get £6.20 cash for each share sold.

If you sell your rights with the sp at £6.20 then you get £1.20 for each right sold.

If you take up the rights you will only pay £5 for each new share purchased but will obviously forego the £1.20 if you had sold the rights instead so each new share is actually costing you £6.20 (£5 new investment plus the £1.20 you've given up by not selling the rights instead).

Again HeadingNorth - that is not true. If you sell normal shares and buy the rights you do NOT gain anything as you've foregone the value of selling the rights with is the difference between the sp and the rights price.

"Yep..loads selling to buy up the rights"

But why? Nothing is gained by doing this as you end up in the same place.

Hi Clank,

Yes, that is the value of the selling the rights initially except I think the TERP is as Forest says i.e. around £7.36 and because of exchange costs the amount you deduct is around £5.

However that value then moves with the sp (as the TERP is only the theoertical view of what the ex-rights sp should be).

So with SP now £6.20 the value of the rights is about £1.20.

If the SP falls to £5 then obviously the rights become worthless and so you'd get nothing for selling them.

"When does the RI end?"

I think it is April 17th but you need to act several days before that and this will vary by broker. With mine I have to decide and act by April 12th but I know some others are earlier.