What is corporate exercises?

Any dates and things I must know about corporate exercises?

sazzy Asked on September 29, 2015 in Business.
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A Corporate Exercise can sometimes be referred to as a Corporate Action. It is when a public company starts a process which will have effects on its stocks and that means the shareholders will be affected along the way. As shareholders, they must be aware of what is happening and what changes it would bring and this could then help them to take the next course of action.

Under many circumstances, many investors are not aware of the consequences of certain corporate exercises which might have an effect on the stocks you hold. It is not merely what corporate exercises that have been carried out but the more important factor is in when are they carried out because it usually involves important dates that include the likes of book closing, cum dates, entitlement dates, ex-dates and record dates.

Each of these dates will have its own reasons and objectives and where it is concerned, the corporate actions will have an effect on your stocks and those that you are planning to invest in. This means that you will have to be fully aware of what to expect and when to expect them. Most investors would read the announcements made by the respective companies which will then provide them with what to do during such exercises.

Announcement Date

The most common dates that you need to be aware of is known as Announcement Dates. This will usually be communicated to Bursa Malaysia where the company will then make an official announcement that they will be making taking a corporate action very soon. It will specify exactly when the action is planned and what action is to be taken. This could be in terms of acquisition, mergers or any other related actions.

Companies listed under Bursa Malaysia would usually make the announcements through Bursa Malaysia or through the media with the bourse informed. Take note that the announcement date is an information where the company is going to make an announcement of a certain action.

Cum Date

When a corporate action is announced and will be taking place soon, there will be a cum date of which is the final day where the stock can be traded at the market price. This is very common particularly among Bursa Malaysia companies which are planning on a major exercise because that would have an effect on the share price. Share splits, consolidations and such would be mostly effected by this because the Cum Date would be informed so that you are aware of the price before the day arrives. Anything after the cum date would mean that the corporate action will come into effect.

Ex-date

As Ex-date is basically the date where the price of the share is at a price after the corporate exercise has taken place. This means that you will have to buy the share before the Ex-Date in order to be entitled for the effects of the corporate exercise. The Ex-Date is used to refer to such entitlements where you will not be involved if the share is bought after the Ex-Date.

Take note that this might differ slightly from the ex-date of warrants where it is a different concept altogether. The Ex-Date in warrants are used to refer to the expiry date of a specific warrant which you must then sell off or risk ending up with nothing.

BCD (Book Closing Date)

The BCD or book closing date is a date which most shareholders will be interested in because this the date which will determine if they are entitled to issues like bonuses or dividends. The Book Closing Date refers to the cut-off date where the company will be finalising all the shareholders who will be eligible for the incentives. For example, if the company announces that the Book Closure Date is June 30, 2012, that means that if you own any shares of that particular company as of that particular date, you will be entitled to any benefits like share splits, bonus or dividends.

The Book Closing Date is very important for the investor particularly if you are holding many shares of the particular company. This is where you need to be aware of them throughout the calendar year where the date is usually the same each year. If you own different shares from different companies, the common practice is to mark them down in your calendars to expect any upcoming declaration of issues and such.

Payment Date

The Payment Date refers to the day where a scheduled payment is expected to be paid to the shareholders. In this context, most circumstances would involve the payment of stock dividends where you must be a shareholder of the particular company before the ex-date in order to qualify for this entitlement.

The Effects of Corporate Actions

So what type of effects will be felt by shareholders when corporate action exercises take place? This is where you need to be aware that when investing in shares under Bursa Malaysia is not merely buying and selling shares at the appropriate time because you will find that depending on the corporate actions that take place it would affect the number of shares you hold where it could either increase or decrease after the exercise.

This is particularly true especially with companies undertaking actions like ‘bonus issues’ or share splits which are commonly done by company to increase their capital base. Corporate actions are also commonly referred to as corporate exercises where the whole objective is to increase its capital structure of a particular public listed company. You need not be overly cautious about such actions as there will always be an official announcement made by the company. This is the result of a decision which would have been agreed by the directors and major shareholders of the company after an AGM (Annual General Meeting) or EGM (Emergency General Meeting). Typically, there will be impact on the price of the share that you are holding whenever a corporate action takes place and hence it is very important that you know when and what would be happening during such exercises.

What you need to know when a Corporate Action comes about

That which you need to be aware of is first whether the planned action will come in a form of a subscription. This means that you can choose to accept that which is being offered and if you don’t, what are your options. Alternatively it could also be a free entitlement which means that it will impact your shares whether or not you choose to accept. The latter would occur in situations where the actions will benefit the shareholders like bonus issue and such.

You would also need to know the ratio which is being proposed by the respective action where it would involve how many new shares you will be entitled to after the corporate action. This is very important because it means that you will be profiting more than you previously did prior to the corporate action. However, it could also be a share split where your shares would be divided to more shares while the value might remain the same. Thus, you would have to know what sort of impact it would have on the price and number of shares that the company is planning to derive from the corporate action.

Typically, the investment of shares would require you to stay ahead of what is going to happen throughout the year for the particular company. It would be more tedious if you own shares from several companies in Bursa Malaysia because that would mean keeping tap of all the different dates of the corporate actions that come about. Some are ad-hoc while others are pretty much the same each year. So, it is essential that you mark them down in your calendars to anticipate the next corporate action coming up.

sazzy Answered on September 29, 2015.
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