Wednesday, May 25, 2016

Fractional Entitlements for CDP vs StanChart Trading Platform

Hi all,

It's really been awhile (close to a year) since I last blogged. Things have been quite busy since I officially graduated from Uni and now focusing on my full time job.

Well, the market (STI) has been on a downtrend after April' 15 and there had been quite a few bull traps and it's currently hovering around 2,700+.

As a dividend investor, I am more concerned on ability of companies to pay dividends than the stock fluctuations. Since a few of my stocks are entitled to script dividend scheme, I have been thinking through should I collect cash or dividends. As I bought some shares under Standard Chartered Securities trading platform, it came to my attention that fractional entitlement to the new shares are actually all rounded down for Standard Chartered.

In the case of OCBC Shares, for CDP holders

Issue share price= $8.11

Fractional entitlement to a hundredth of a share will be rounded up to the nearest whole share.

For instance if one owns 1041 OCBC shares, he is entitled to (1041*0.18)/8.11= 23.10 and this will be rounded to 24 shares.

However for 541 OCBC shares, he is entitled to (541*0.18)/8.11= 12.007, which will be rounded down to 12 shares (only rounded up to the hundredth of a share).

Whereas for Standard Chartered, it's always rounded down to the nearest whole no. regardless of the stock. Quoted from the letter:

In the event that this corporate action (whether voluntary or otherwise) results in you holding a fractional interest in relation to any Security, the total amount of your allocation of such Security will be rounded down to the nearest whole number.

When I saw the Corporate announcement letter by Stan Chart, I thought they could have made a mistake by standardizing all the script scheme. I called to check with the staff and they confirmed with me that it's all rounded down.

After much thought, I began to understand why. The most probable reason is that since Standard Chartered hold their shares under Raffles Nominees Pte Ltd, they are actually treated like one corporate shareholder instead of many individual shareholders.

Come to think of it, if they owns 10k of OCBC shares, Raffles Nominees Pte Ltd actually receives (10,000*0.18)/8.11=  221.94, rounded up to 222 shares. Assuming it consists of 10 individual shareholders, each will own 1k shares. Then Stan Chart sends out Corporate announcement that shares will be rounded down. So each will receive (1,000*0.18)/8.11= 22.19  shares, rounded down to 22 shares. So 22*10= 220 shares, so my guess is that they'll most probably profit the 2 shares. I have nothing against this since the brokerage fee is 0.20% with no minimum trading fee and it's quite easy to use. It's quite a good platform to do dollar costs averaging.

For this time round, I've got the option to participate in dividend script scheme for:

1.DBS
2.UOL
3.OCBC
4.First REIT
5. Raffles Medical

With exception of UOL (which I am still considering), I subscribed to their script dividends for shares under CDP and exercised cash option for Stan Chart.

Cash or Script?- if issue price is very close or slightly to current share price

Many people whom I know will compare the current price to script price and decide if it's worth taking shares. And they'll take cash if issue price is ever higher or very near to the stock price, because the thinking is that it' ll be cheaper to buy from stock market.

That will probably make alot of sense if brokerage fee+ total shares acquired from market is cheaper than subscribing to issue price. But in many cases, it's actually not unless we really own quite a substantial amount of shares. For instance, UOL shares closed at $5.60 today (24-May) and their new issue share price is $5.66. I am entitled to 27 new shares by holding 1020 shares. Although it's cheaper in stock market, the only way I can buy is through the unit share market - low liquidity and high brokerage fees.

The approach is quite short term thinking imo, since current share price is not reflective of the underlying's firm intrinsic value. As a long term investor, a better way to decide is to consider the value of the shares to the script rather than just comparing to stock price. Anyway the stock price changes everyday and if it went up much in a years time, probably we'll regret not subscribing to the script.

And lastly on Silverlake Axis...
I have received some queries and emails asking for my thoughts on Silverlake Axis and what action did I take. The price has move quite abit and market seemed to be convinced by the shortseller's report. For me,  similar to B, I read through the report (but only early this year) and I ve decided to bite the bullet and divested all my shares at $0.550 with some dividends. The 42 pages is definitely not an easy read especially on the related party transactions where the company names can be quite confusing. So in my next post, I will try to write-up a post of SLA in a more simple version to make it easy for investors to understand.



In the past, I have been able to write 2-3 posts a month but judging from my current job demand, I will most likely be able to do a monthly post from now.

Thanks for reading my blog! Hope you enjoyed reading and benefited from it. Whenever I update my blog series/ blogposts or making adjustments to my portfolio, I'll  post them on my Facebook. To be the first few to be notified and to stay in touch, be sure to follow me on Facebook my liking my page by clicking here or at the top right hand corner (in desktop view)! :) Do also share my posts if you believe my writing could benefit more people.


4 comments:

  1. interesting post! i never knew SCB rounded down!
    but after your explanation, it kinda makes sense. and also since they have no min brokerage.. they need other form of revenue...


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    Replies
    1. Hi foolish chameleon,

      Haha, to be honest, i doubt they actually intend to make money from those leftover shares, but if they actually round up for everyone, it will be a huge loss to them, as they will not get those shares anyway.

      They still made some money from brokerage fee I guess.

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  2. Does anyone have the contact number of Raffles Nominees? I'm trying to get in touch with them but standard chartered bank refused to reveal to me the information saying it is their company policy? Not sure if that make senses since Raffles Noinees is from Stanadard Chartered bank..

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    Replies
    1. Hi Milo, not too sure why you would need their contact no. If you have shares in Raffles Nominee, you can contact StanChart at 1800 242 5333.-EoTS

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