Corporate actions can be a big undertaking and have significant impacts on both the company and its shareholders. Keeping corporate actions aligned with company goals and objectives is crucial for a successful event. It is also important to know how to handle it when share participants are involved.
What is a rights issue?
A rights issue is a corporate event in which a listed company chooses to issue new shares to its existing shareholders and share plan participants. These shares, offered at a discount, allow shareholders and participants the right, but not obligation, to purchase newly issued shares and increase their number of owned shares while helping the company raise more money without bringing in new, outside investors.
What does it mean to plan participants?
Participants as shareholders also have the option to sell their rights entitled from their own existing shares. Specifically, a share plan participant's unvested portion can be adjusted to reflect the share value change. It is important to note that in the Hong Kong market registered shareholders on ROM (Register of Members) need to deposit their shares into bank or broker to sell the right entitled from these shares.
As more shares are introduced into the market, dilution will naturally occur. Existing shareholders or share plan participants gain access to these right prior to open market introduction with a defined expiration date of the rights issue offering.
What options do share plan participant have when a rights issue is presented?
As share plan participant a rights offering is an option rather than an obligation. Once a rights issue is presented, individuals can choose to purchase the discounted shares, ignore the rights issue completely or sell rights.
Considerations for share plan participants
When a company issues rights, careful consideration must be given to the implications for existing share plan participants. The efficient collection and execution of participant selections are key for a successful rights issue.
Make selection – A reliable and user-friendly online platform, provided by a professional and experienced plan manager, is essential for facilitating participant selections. Such a platform should enable participants to easily exercise, sell, or waive their rights. Automation is key to streamlining the process, ensuring accurate and timely capture of participant selections and minimizing the risk of errors.
Adjusting stock holdings – Following the selection process, companies may need to adjust stock holdings based on various factors, such as unvested restricted stock units, options, and vested but unexercised options. The share plan provider must promptly manage these adjustments to maintain accurate records.
Shares held in trust – For companies with shares held in trust for future vesting to participants, effective collaboration between the plan manager and trustee is essential. To ensure sufficient shares are available for vesting, the trust may need to purchase additional shares from the market or exercise the right, subject to the scheme’s rules. In-house trusts often offer a more streamlined process compared to third-party trustees.
By partnering with a reputable employee share plan provider, companies can navigate the complexities of rights issues, ensuring a smooth and efficient experience for both the company and its share plan participants.
Computershare offers a one-stop solution for managing all aspects of employee share plans, including corporate events that may impact shareholdings. With a proven track record of assisting companies across Asia, Computershare has extensive experience in handling rights issues for both ordinary and employee shareholders.