For some strange unfathomable reasons, noble had decided to issue a bonus exercise of 6 bonus shares for every 11 shares held before ex date. Why 11 - a prime number? Wouldn't it round off nicer if the exercise is 6 for 10, or even 6 for 12? In order to round up nicely, investors must hold shares in multiples of the lowest common multiple of 11 and 1000 (who say maths is useless?). However, 11 is a prime number, so you must have 11 lots at the minimum in order not to end up with odd lots. If not, I think the trailing decimal places in the calculation of your bonus shares will be rounded down.
Each share is trading currently at around $3, so 11 lots will cost $33,000. Not a small sum of money at all for retail investors.
I am holding 2 lots of noble, so I'm trying to find ways to circumvent the problem of odd lots. I knew about the unit share market from poems trading platform. It's used to trade shares lesser than the board lot size of (usually) 1000 shares. I think somehow, I've got to use this feature in order not to end up with odd lots.
Here's a few ways that I can think of:
1. Buy 2 more shares from the unit share market, to arrive at a total of 2002 shares of noble before ex date. Since 2002 is a multiple of 11, I'll end up with 1092 bonus shares, giving me a total share after ex date of 3094 shares. Commission structure of unit share market is 0.28%, with a minimum of $10 charge.
Great...it's still odd...not a fantastic idea. I'll have to sell 94 shares or buy another 906 shares from the unit market to end up with nice board lot size.
2. Buy 9 more lots of noble to arrive at a total of 11 lots of noble before ex date. This will entitle me to 6 bonus lots, with a total of 17 lots of noble after ex date.
If not for the exorbitant extra 27k needed, this will be a good solution. I don't think I want to put so much into noble just so that I can skip the odd lots...bad idea.
3. Do nothing before ex date and get a bonus share of 1090 (rounded down), arriving at a total share of 3090 after ex date. Then go to the unit share market to sell off 90 shares of noble or top up with 910 shares to get 3 lots or 4 lots respectively.
The added advantage of topping up with 910 shares is that I would expect a selloff immediately after ex date as investors go to cash out their odd lots, so I might be able to buy at a much cheaper price to average down my overall purchase.
The estimated price after XA is $1.95. Assuming I want to buy 910 shares off the unit share market at 2.20 (I assume an even higher buy price at unit share market), it'll cost be $2002. Add in minimum commission of $10, it'll be roughly $2020. The dividend of roughly $100 can be used to offset the cost of purchasing the odd shares too.
Might not be such a bad idea.
4. Sell off noble before ex date and buy it back a few days after ex date.
I like this idea a lot, so I've been queuing to sell for the last couple of days. If there really is a sell off after ex date, I'll be able to skip all the nonsense odd lots and even get a cheaper price for the shares. However, doing so, one will not be able to get the dividends. This should not be a big deal, considering how little the dividend is. I wouldn't be worried about this.
Do note that due to the low liquidity at the unit share market, the buy/sell spread can be quite big. You also have pay the minimum of 0.28% of transactions or $10, even if you buy/sell 1 share. Proportionally, the cost is higher. As such, I think no.1 is a very bad idea. I'm just wasting money doing it that way. No. 2 is out for me as I do not wish to be overexposed to noble, given my capital size.
So, it boils down to no.3 or no.4. Let's see which one the market throws at me.
Thursday, May 13, 2010
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15 comments :
Weowww! 1st comment!
If only the sg mkt is like the US where the lot size is 1 share, then this noble issue would be a non-issue;
Hey Grey,
Haha, exactly. Unfortunately, some higher authority must have thought that reducing the board lot size to 1 share might cause price volatility and hence 'risk' to the local market, hence they do not want this to happen.
Still, I can't help but wonder about the more sinister reason for putting a rights exercise that gives most pple odd lots.
Thank him for helping you to write a post on it. LOL
Apparently the US markets have been doing fine from the "price volatility" and the "risk";
Sometimes it might just be sheer stupidity on the part of the higher authority; Or perhaps there might be some sinister motives;
Hi Grey,
I agree on your views on US price volatility. It's fine. At least it's not as rigged to the big players in the market as it is here.
Sinister motives for putting 1000 shares in 1 board lot? Enlighten me pls :)
I choose option 2 to collect dividends at 2.3% yield and remain status quo.
Hi bro8888,
I can't sell it, haha :) so I'll just wait and collect more over time to chalk up board lot.
Hi la papillion,
There is really no big deal in holding odd lots. And I don't really worry about it.
Noble Group had a history of doing bonus shares. Therefore, even if you tried to round up to the nearest board lot this time round, you will face the same "problem" again next time round.
By the way, the dividend declared is entitled to participate in the scrip dividend scheme. Therefore, you might wish to take that into consideration as well rather than using the dividend to buy from odd lot market.
Hi ghchua,
I think I didn't take into account their history of giving bonus shares. You're right, even if I were to round up the odd lots, next round I'll end up with odd lots again.
However, I do not intend to hold this for long periods of time. It's just a trading counter to me, hence the need to be able to sell/buy easily. I guess that's the difference.
I know about the scrip dividend thing and I decided against that. I only have scrip dividend for counters that I wanted to hold for very long term. So far, I've only did that for HSBC.
I guess I would either sell my odd lots to get board lot size for the ease of trading, or I would buy up to do the same. I'll see what the market condition is like before deciding :)
Hi Papi,
I'm holding some noble shares and am entitled to bonus shares. Where, when and how do I trade the odd shares as I've never encountered this before. Does DBS Vickers carry out such trades? Regards.
Hi anonymous,
I only know that poems have a unit share market that can trade odd lots. I have dbs vickers account but I do not think they have a market to sell unit shares exclusively. In that case, you might have to approach your broker for the buy/sell of odd shares.
Do ask for the commission structure for such transactions from your broker.
Hi,
I believe the reason for using 11 shares as a base is due to its historical bonus policies.
Share volume growth -
2001 - Bonus 1 for 4 (1000 shares = 1250 shares)
2002 - Bonus 1 for 5 (1250 shares = 1500 shares)
2003 - Bonus 1 for 4 (1500 shares = 1875 shares)
2004 - Stock Split 1 for 4 (1875 shares = 7500 shares)
2005 - Bonus 1 for 10 (7500 shares = 8250 shares)
2008 - Bonus 1 for 5 (8250 shares = 9900 shares)
2010 - Bonus 6 for 11 (9900 shares = 15300 shares)
Since 9900 is a multiple of 11, I think they used it to prevent odd lots haha !
Hence every share a person bought in 2000 would have grown to 15.3 shares in 2010.
Please correct me if I am wrong.
Cheers !
Hi anonymous,
Wow, you really researched deep into noble's bonus shares issue :) Amazing :)
I doubt anyone would have invested noble for so long, haha :)
Hi,
Just want to ask, if I did nothing to the option of getting the bonus issue, what happen to my stock value? The price change from 3 to 1.9 after ex-date. Will they send me a cheque or something on the difference?
Thanks!
Hi anon,
You do not have to do anything to the bonus issue. The bonus shares is given to you whether you want it or not. The price dropped as a reflection of the more diluted shares in the open market now.
Check your CDP, you should have the bonus shares credited now. I received the letter confirming that just yesterday. You will not be given a cheque for the difference.
The drop in share price is such that it will be made up by the increase in the no. of shares that you have now, theoretically. But in reality, the price dropped much more than the theoretical price.
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