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Common Corporate Exercises By Listed Companies







Companies often embark on a spectrum of corporate exercises designed to bolster their market standing, drive shareholder value and adapt to the ever-evolving business dynamics.

 

This alert examines the various common corporate exercises that are undertaken by listed companies, ranging from rights issues to raise additional capital to bonus issues that reward shareholders. Each initiative represents a deliberate step towards sustainable growth of these listed companies.

 

Rights Issue

 

What is a rights issue?

 

A rights issue is a method through which a company raises additional capital by offering existing shareholders the opportunity to buy additional shares at a discounted price, in proportion to their existing shareholdings. This is a way for the company to tap into its shareholder base to secure funds for various purposes, such as financing expansion projects, reducing debt or strengthening its financial position.


Rights issues are a common corporate finance strategy, providing companies with a means of raising capital without incurring debt. This exercise also allows existing shareholders to maintain their proportional ownership in the company by participating in the issuance.

 

How does a right issue usually work?

 

The breakdown of how a rights issue typically works is as follows:

 

1.    Announcement:

The company announces its intention to issue new shares to existing shareholders. This is usually accompanied by details such as the number of shares to be issued, the subscription price, and the ratio at which existing shareholders can purchase new shares.

 

2.    Circular to shareholders:

Listed companies should take note that of the circumstances which would require shareholders’ approval to be obtained prior to the right issue, and thus a circular to be issued. Kindly refer to the section on ‘Listing requirements in respect of Rights Issues and Bonus Issues for Listed Companies’ in this article below.

 

3.    Exercise Period:

 

Existing shareholders are given a specific period, commonly known as the exercise period, during which they can exercise their rights to buy the new shares.

 

4.    Subscription Price:

 

The subscription price is typically set at a discount to the current market price of the company's shares. This discount is intended to incentivize existing shareholders to participate in the rights issue.

 

5.    Use of Funds:

 

The funds raised through the rights issue are to be used by the company for the purpose as stated in the announcement and/or circular to shareholders. This would typically include purposes such as funding new projects, repayment of financing facilities and/or purchase of new assets.

 

6.    Impact on Ownership:

 

If existing shareholders choose to participate in the rights issue, their ownership stake in the company will remain relatively unchanged. However, if they do not exercise their rights, their ownership stake may be diluted as new shares will be issued to the shareholders who opted to participate in the rights issue.

 

Bonus Issue

 

What is a bonus issue?

 

Bonus issue refers to offers given to shareholders to subscribe to additional share without additional cost. There are two types of bonus issue, namely, bonus issue of shares and bonus issue of warrants.

 

A bonus issue of shares is where a company distributes additional shares to its existing shareholders without requiring any payment in return. These additional shares are issued on a pro-rata basis, meaning that shareholders receive bonus shares in proportion to their existing shareholdings.

 

On a similar note, another common form of bonus issue is a bonus issue of warrants whereby a company will distribute additional warrants to its existing shareholders without requiring any payment. Warrants are financial instruments that give the holder the right, but not the obligation, to buy a specific number of shares of the company's shares at a predetermined price within a specified period. Further information on warrants is included in the section below.

 

The objective of a bonus issue is not to raise additional capital but to capitalize the company's reserves and distribute accumulated profits or reserves to shareholders in the form of shares / warrants. Issuance of bonus share also serves as a method to enhance the marketability and trading liquidity of the company’s shares in the market.

 

Bonus issues of shares are a way for companies to reward existing shareholders without affecting their cash position. While the market value of individual shares may be impacted, the overall value of shareholders' investments remains unchanged due to the increased number of shares they hold. Similar to a bonus issue of shares, a bonus issue of warrants is a way for a company to reward its shareholders by providing them with the opportunity to acquire additional shares (through the exercise of warrants).

 

What are share warrants?

 

Share warrants are financial instruments that give the holder the right, but not the obligation, to buy shares at a specified price within a predetermined time period. Warrants are often used in the financial markets as a way to provide investors with the opportunity to benefit from potential price movements in the company’s shares.

The key features of share warrants are as follows:

 

1.    Exercise Price: Warrants come with a predetermined exercise price, being the price at which the warrant holder can buy or sell the underlying shares.

 

2.    Expiration Date: Warrants have a specified expiration date, after which they lose their value. The warrant holder must exercise the warrant before the expiration date to take advantage of its rights.

 

3.    Traded on Exchanges: Warrants can be traded on stock exchanges, and their prices are influenced by factors such as the price of the underlying shares, time remaining until expiration, and market volatility.

 

4.    Exercise by the Holder: The decision to exercise the warrant rests with the holder. The warrants holder may choose to exercise or not exercise the warrants.

 

5.    Potential for Future Gains: Shareholders holding warrants have the option to exercise them in the future (but within the specified period) when the market conditions are favourable. This allows them to acquire additional shares at the predetermined exercise price, potentially leading to capital gains.

 

Warrants are commonly used in various financial transactions, including corporate finance, investment strategies, and trading. Investors may use warrants to speculate on price movements, hedge existing positions, or gain exposure to the shares at a lower cost. Companies may issue warrants as part of financing arrangements to attract investors or as a form of employee compensation. It's important to note that the terms and conditions of the warrants, including the exercise price, expiration date, and any specific provisions, as outlined in the deed poll.

 

How does a bonus issue usually work?

 

The breakdown of how a bonus issue typically works is as follows:

 

1.    Announcement

 

Bonus issue of shares:

The company announces its intention to issue bonus shares to existing shareholders. The announcement includes details such as the ratio of bonus shares to existing shares and the purpose behind the bonus issue.

 

Bonus issue of warrants:

The company announces its intention to issue bonus warrants to existing shareholders. The announcement includes details such as the ratio of bonus warrants to existing warrants or shares, the exercise price of the warrants, and the purpose behind the bonus issue.

 

2.    Circular to Shareholders

 

Listed companies should take note that of the circumstances which would require shareholders’ approval to be obtained prior to the bonus issue, and thus a circular to be issued. Kindly refer to the section on ‘Listing requirements in respect of Rights Issues and Bonus Issues for Listed Companies’ in this article below.

 

3.    Issuance:

The bonus shares / warrants are issued to existing shareholders in proportion to their current shareholdings. For example, if the bonus issue ratio is 1:1, shareholders receive one additional share / warrant for every share they already own.

 

4.    No Cash Payment:

 

Unlike a rights issue, in a bonus issue, shareholders do not need to make any cash payment to acquire the bonus shares / warrants. The bonus shares / warrants are essentially a "gift" from the company.

 

5.    Exercise Price and Expiry Date (applicable to bonus warrants only):

 

The bonus warrants come with an exercise price, which is the price at which shareholders can purchase additional shares in the future. There is also an expiry date, beyond which the warrants can no longer be exercised.

 

6.    Impact on Share Price and Ownership for Bonus Share Issue:

 

Since the total number of shares increases without a corresponding increase in the company's market capitalization, the share price per unit may adjust downward after a bonus issue. However, the overall value of shareholders' holdings remains the same because they now own more shares.

 

7.    Reasons for Bonus Issues:

 

Companies may undertake bonus issues for various reasons, such as capitalizing on accumulated profits or reserves, improving liquidity in the stock, making shares more affordable to retail investors, and enhancing the company's image. Companies may also undertake the same to reward shareholders, incentivizing them to stay invested in the company, or aligning their interests with the company's future performance.

 

 

 

 

Listing Requirements For Rights Issues And Bonus Issues For Listed Companies

 

It is important for listed companies in Malaysia to take note of the additional requirements imposed by Bursa Malaysia Securities Berhad including the Main Market Listing Requirements, ACE Market Listing Requirements and LEAP Market Listing Requirements (where applicable).

 

In summary, the key matters to take note of in respect of rights issues and bonus issues for listed companies are as follows:

 

1.    Circular to Shareholders: A circular containing information on the rights and bonus issues, including the purpose, terms, conditions and proposed shareholders’ resolutions to be passed, must be sent to shareholders.

 

2.    Approval: The rights issue and bonus issues must be approved by the company's shareholders through a resolution passed at a general meeting prior to the implementation of the same. The relevant listing requirements are extracted as follows:

 

Paragraph 6.03 of the Main Market Listing Requirements and Rule 6.04 of the ACE Market Listing Requirements

 

(1) Subject to paragraph 6.06 (Main Market) and Rule 6.07 (ACE Market) and notwithstanding the existence of a resolution pursuant to sections 75(1) and 76(1) of the Companies Act 2016, or in relation to a foreign corporation, a resolution of a similar nature pursuant to the relevant laws of the place of incorporation, a listed issuer / corporation must not issue any shares or convertible securities if the total number of those shares or convertible securities, when aggregated with the total number of any such shares or convertible securities issued during the preceding 12 months, exceeds 10% of the total number of issued shares (excluding treasury shares) of the listed issuer / corporation, except where the shares or convertible securities are issued with the prior shareholder approval in a general meeting of the precise terms and conditions of the issue.


(2)  In working out the number of shares or convertible securities that may be issued by a listed issuer / corporation, if the security is a convertible security, each such security is counted as the maximum number of shares into which it can be converted or exercised.

 

(3) Where a general mandate for issue of securities is sought, the listed issuer / corporation must include in the statement accompanying the proposed resolution the following information:

 

(a)    whether such mandate is new or a renewal;

 

(b)    where such mandate is a renewal or has been sought in the preceding year, to specify the following: (i) the proceeds raised from the previous mandate, if any; (ii) the details and status of the utilisation of proceeds; and

 

(c)    the purpose and utilisation of proceeds from the general mandate sought.

 

Paragraph 6.04 of the Main Market Listing Requirements and Rule 6.05 of the ACE Market Listing Requirements

 

Subject to paragraph 6.05 (Main Market) / Rule 6.06 (ACE Market), where issuance of shares or convertible securities is made pursuant to paragraph 6.03(1) (Main Market) / Rule 6.04(1) (ACE Market), the listed issuer / corporation must ensure the following:

 

(a)         shares are not priced at more than 10% discount to the weighted average market price of the shares for the 5 market days immediately before the price-fixing date;

 

(b)         for issue of convertible securities – (i) if the exercise or conversion price is fixed, such price is not more than 10% discount to the weighted average market price of the underlying shares for the 5 market days immediately before the price-fixing date; and (ii) if the exercise or conversion price is based on a formula, any discount in the price-fixing formula is not more than 10% of the weighted average market price of the underlying shares for the 5 market days immediately before exercise or conversion; and

 

(c)         securities are not placed to – (i) the interested director, interested major shareholder, interested chief executive or interested person connected with a director, major shareholder or chief executive (all as defined in paragraph 6.06 (Main Market) / Rule 6.07(ACE Market)); and (ii) nominee corporations, unless the names of the ultimate beneficiaries are disclosed.

 

Paragraph 6.05 of the Main Market Listing Requirements and Rule 6.06 of the ACE Market Listing Requirements

 

Notwithstanding Section 75(2) of the Companies Act 2016, where an issue of shares or other convertible securities departs from any of the applicable requirements stipulated in paragraph 6.04 (Main Market) / Rule 6.05 (ACE Market), the listed issuer / corporation must obtain the prior shareholder approval in a general meeting for the precise terms and conditions of the issue, in particular on – (a) the issue, exercise or conversion prices of the securities or, in a situation where such prices are to be determined after the date of shareholder approval, the basis or formula of determining such prices; and (b) the purposes of the issue and utilisation of proceeds.

 

Paragraph 6.06 of the Main Market Listing Requirements and Rule 6.07 of the ACE Market Listing Requirements

 

(1)         Subject to subparagraph (1A) (Main Market) / sub-Rule (1A) (ACE Market) below, a listed issuer / corporation must ensure that it or any of its subsidiaries does not issue shares or other convertible securities to the following persons unless shareholders in general meeting have approved the specific allotment to be made to such persons:

 

(a)       a director, major shareholder or chief executive of the listed issuer / corporation or a holding company of the listed issuer / corporation (“interested director”, “interested major shareholder” and “interested chief executive”); or

 

(b)       a person connected with an interested director, interested major shareholder or interested chief executive (“interested person connected with a director, major shareholder or chief executive”).

 

(1A) Subparagraph (1) (Main Market) / Sub-Rule (1) (ACE Market) above is not applicable to an issue of securities – (a) on a pro rata basis to shareholders; (b) pursuant to a back-to-back placement undertaken in compliance with paragraph 6.14 (Main Market) / Rule 6.15 (ACE Market); or (c) pursuant to a Dividend Reinvestment Scheme.

 

(2)         Notwithstanding any provision to the contrary in these Requirements, in a meeting to obtain shareholder approval in respect of the allotment referred to under sub-paragraph (1) (Main Market) / sub-Rule (1) (ACE Market) above –

 

(a)       the interested director, interested major shareholder, interested chief executive or interested person connected with a director, major shareholder or chief executive; and

 

(b)       where the allotment is in favour of an interested person connected with a director, major shareholder or chief executive, such director, major shareholder or chief executive, must not vote on the resolution approving the said allotment. An interested director interested major shareholder or interested chief executive must ensure that persons connected with him abstain from voting on the resolution approving the said allotment.

 

(3)         A listed issuer / corporation must include the following in the notice of meeting:

 

(a)       the number of securities to be so allotted;

 

(b)       the purpose of allotment;

 

(c)       the precise terms and conditions of the allotment; and

 

(d)       the identity and relationship of the persons connected with the director, major shareholder or chief executive, where applicable.

 

(4)         Except in the case of an issue of securities on a pro rata basis to shareholders and subject to sub-paragraph (1) (Main Market) / sub-Rule (1) (ACE Market) above, a listed issuer / corporation must ensure that its subsidiary does not issue shares or other convertible securities to a director, major shareholder or chief executive of the said subsidiary or the holding company of the said subsidiary (other than the listed issuer / corporation or a holding company of the listed issuer / corporation) or a person connected with such director, major shareholder or chief executive unless –

 

(a)    the listed issuer / corporation has obtained the prior approval of its board of directors for the specific allotment to such persons;

 

(b)    the board of directors of the listed issuer / corporation has ensured that the allotment is fair and reasonable to the listed issuer / corporation and in the best interests of the listed issuer / corporation; and

 

(c)    the listed issuer / corporation immediately announces the specific allotment to such persons and include the following in the announcement: (i) the information prescribed in sub-paragraph (3) (Main Market) / sub-Rule (3) (ACE Market) above; and (ii) a statement by the board of directors of the listed issuer / corporation that the allotment is fair and reasonable to the listed issuer / corporation and in the best interests of the listed issuer / corporation. Where a director disagrees with such statement, a statement by the director setting out the reasons and the factors taken into consideration in forming that opinion.

 

Rule 5.04 of the LEAP Market Listing Requirements

 

(1) A listed corporation must obtain prior shareholder approval to issue shares or convertible securities unless the shareholders had, by resolution in a general meeting, given a general mandate to the directors of the listed corporation, either unconditionally or subject to such conditions as may be specified in the resolution, to issue shares or other convertible securities.

 

(2) In seeking the shareholders’ general mandate for an issue of shares or convertible securities, the listed corporation must ensure that the aggregate number of shares or convertible securities issued must be not more than 100% of the total number of issued shares, of which the aggregate number of shares and convertible securities issued other than on a pro rata basis to existing shareholders must be not more than 50% of the total number of issued shares.

 

(3) A listed corporation may issue shares or convertible securities to a director, major shareholder or chief executive of the listed corporation or person connected to them (“interested parties”) under a general mandate on a non-pro rata basis provided that –

 

(a) the general mandate expressly authorises the issuance of shares or convertible securities to interested parties;

 

(b) the aggregate number of shares or convertible securities issued to the interested parties must be not more than 10% of the total number of issued shares; and

 

(c) such issuance of shares or convertible securities is approved by the board of directors and done in the best interests of the listed corporation.

 

3.    Regulatory Approval: To obtain necessary regulatory approval from Bursa Securities.

 

4.    Timely Disclosure: The company must adhere to the timely disclosure of information and announcements related to the rights issue and bonus issue.

 

It is crucial to note that the listing requirements may be subject to change, and companies need to refer to the latest guidelines and regulations issued by Bursa Securities and/or the Securities Commission Malaysia. For further details, kindly refer to Chapter 6 of the Main Market Listing Requirements and ACE Market Listing Requirements and Chapter 5 of the LEAP Market Listing Requirements.

 

Conclusion

 

In conclusion, the landscape of corporate exercises undertaken by companies reflects a strategic commitment to adaptability, growth, and value creation. Whether through rights issues, bonus issues or other corporate exercises, these corporate exercises serve as dynamic tools employed by listed companies to fortify their positions in the ever-evolving business environment.



15 May 2024

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