Author Topic: Rights issues and share purchase plans  (Read 2830 times)

bigchrisb

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Rights issues and share purchase plans
« on: August 31, 2014, 07:20:41 PM »
A number of my stocks at the moment are issuing stock at a discount to market, either through rights issues or share purchase plans.  I'm a bit torn what to do with these, as not taking them up seems like leaving free money on the table.  Taking them up probably leaves me over exposed to these companies.  Taking them up an selling on market may be the way to go, but will involve a capital gains tax hit.  What would you do:

Examples (all are Australian stocks)
AGL: 1 for 5 rights issue.  Issue price $11.  Market price $14.11.  Instant gain: 28%
QBE: Share purchase plan.  Up to $15,000.  Issue price $10.10 share price $11.57.  Instant gain: 14.5%

Despite already having significantly holdings in these two companies, I think that not taking these up would be silly.  Issuing stock at such a discount has a significant dilution impact for shareholders, but that's already done, so to avoid the dilution, I think I'm pretty much obliged to participate in these?

The thoughts from the MMM community?

milesdividendmd

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Re: Rights issues and share purchase plans
« Reply #1 on: August 31, 2014, 07:40:20 PM »
Not sure about Aussie tax law, but in America I would buy shares and sell them immediately. You'll only be taxed on your easily gained profits. I might consider holding the shares a year and then selling if I thought the company was value priced, to avoid short term capital gains.

TomTX

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Re: Rights issues and share purchase plans
« Reply #2 on: August 31, 2014, 08:03:25 PM »
Not sure about Aussie tax law, but in America I would buy shares and sell them immediately. You'll only be taxed on your easily gained profits. I might consider holding the shares a year and then selling if I thought the company was value priced, to avoid short term capital gains.

Why not buy the new shares, and sell the old ones for long term cap gains rate? (this works in the US, don't know Aussie rules)

milesdividendmd

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Re: Rights issues and share purchase plans
« Reply #3 on: August 31, 2014, 08:07:13 PM »
It depends on how much capital gains he's already accumulated on his current shares. If he bought them long ago and has gained a lot already, it may be cheaper to be taxed at a higher rate on a lesser gain.

The math ain't hard, in the end you want to just pay the least possible dollar amount in taxes for selling a fixed amount of shares.

bigchrisb

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Re: Rights issues and share purchase plans
« Reply #4 on: September 02, 2014, 01:15:16 AM »
Thanks.  These are held within a company, so no capital gains tax discount.  Never the less, makes sense to take them up.  Yet to decide if I'll sell and take the tax hit, or if I'll hold on to them for the divs.

marty998

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Re: Rights issues and share purchase plans
« Reply #5 on: September 02, 2014, 07:13:24 AM »
Why is QBE raising money with a SPP when they are also trying to float their Lenders Mortgage Insurance business? How dire is the financial picture of that company?

Never ceases to amaze me that over and over again the supposed captains of industry make so many shit decisions after shit decisions. Especially with the number of heavily discounted and dilutionary capital raisings that are conducted at the bottom of cycles and share price lows.

[/end rant for day, sorry]

AGL looks a no brainer, but you need to figure out what the theoretical ex-rights price is. Used to be able to do that in my head, old maths skills are lacking nowadays :)

You're probably aware, but for the benefit of other Aussies here, you are permitted to pick and choose share parcels to sell for CGT purposes. It doesn't have to be on a first in first out basis.