important events of Hong Kong stock companies: rights issue, rights issue, dividend, suspension and delisting

If you follow or hold a stock, you may find that the company will announce some events, such as rights issue, rights issue, dividend, suspension and delisting. What do these events mean? What is the impact on the company? Let's take a look at this section.

1. Rights issue

A rights issue in the Hong Kong stock market is the issuance of new shares to specific investors. The rights issue process of Hong Kong shares is more flexible and the cycle is relatively simple. When listed companies need further financing in the market, or when the original shareholders need to reduce their holdings, rights issue is usually a more common choice.

The rights issue in the Hong Kong stock market can be divided into two types: placing new shares and placing old shares, which can also be mixed. In fact, allotment is the directional reduction of shareholders with a larger proportion of shares, which will not increase the number of shares in the company. New shares are issued by the company and purchased by the allottees agreed upon by the company, and the number of shares will be increased.

In practice, the combined fist is more commonly used-the old and then the new allotment of shares. That is, the major shareholders first sell the shares, and then the company issues new shares to the major shareholders. The advantage of this rights issue is that through the old-to-new issuance model, the shares acquired by the allottee can be listed on the same day without any lock-up period.

So what impact will the rights issue have on the company's share price? This usually depends on the price of the rights issue. Take the most common old-to-new rights issue as an example, in most cases, the allotment price will be discounted to a certain extent relative to the current market price, and the allottee has no lock-up period, so he can sell the shares immediately after getting the shares, so as to earn the price difference. Therefore, if there is a large discount, the company's share price will generally fall in the short term after the rights issue is announced.

For example, XIAOMI Group, which has a high degree of attention in the Hong Kong stock market, announced at noon on December 2, 2020, placing 1 billion shares on an old-to-new basis at a price of HK $23.70 per share, with a discount of 9.4%. When trading opened in the afternoon, XIAOMI's share price fell by more than 10% instantly, which is evident from the short-term pressure of the discount rights issue on the stock price.

2. Rights issue

Rights issue is one of the common ways to raise funds for listed companies in Hong Kong. different from rights issue, the object of raising funds is for all shareholders. Existing shareholders need to buy a corresponding number of shares according to the number of shares held and the rights issue price. It is worth noting that listed companies usually offer shares at a discount, and the stock price will be adjusted downwards after the removal of rights. Let's give a specific example to illustrate

Suppose the current total share capital of Company An is 100 million shares, and the current share price is HK $1 per share (the closing price before the ex-vesting day). The company announced an one-for-10 plan with a share price of HK $0.1, or a 90% discount on new shares, with a fund-raising target of HK $100 million. Assuming that all shareholders participate in the rights issue, the company's shares will change from 100 million shares to 1.1 billion shares (100 million old shares + 1 billion new rights issue shares) after the deregulation date. In theory, the share price should be HK $0.182 after the exclusion, down 82 per cent from HK $1 before the exclusion. The calculation formula is as follows:

Excluding the rights, the share price = (HK $1 × 100 million shares + HK $0.10 × 1 billion shares) / 1.1 billion shares = HK $0.182

So what is the impact of rights issues on ordinary investors? At this time, investors face three choices:

The first option is to participate in the rights issue, that is, to buy new shares at the rights issue price, which is equivalent to passively adding positions.

The second option is not to participate in the rights issue while keeping the shares in hand. After the removal of rights, the share price will plummet, and the position will suffer heavy losses.

The third option is not to participate in the rights issue, and do not want to accept the sharp fall in the share price after the rights issue, so you can only sell the stock or the rights issue in advance. However, if too many investors want to sell at the same time, share prices may come under pressure and investors may suffer losses.

3. Pay dividends

If we say that the rights issue and rights issue in the Hong Kong stock market, to some extent, the listed companies draw blood from the market, they may not be very popular with investors. Then the company pays cash dividends, that is, listed companies share profits with shareholders, which is also very recognized by investors.

In addition to the bid-ask spread in stock investment, another important source of income is dividend. For listed companies, companies can pay dividends or not; they can pay more or less. This is affected by the operation of the company, but also related to the dividend policy of the company.

The number and timing of dividends are often related to the time when the company announces its profits, so it is usually paid out quarterly, semi-annual or annual. However, if a company makes money through investment or other means outside its main business, it can also pay a dividend at any time, which is called a special dividend.

Divide the annual dividend per share by the current share price, and you get the dividend yield. Some investors in the market are very concerned about the companies that pay dividends all the year round and have a high dividend yield.

With regard to the dividend payout, there are four dates to pay attention to.

Announcement date: on this day, the company announces the dividend distribution information, including the timing, the number of dividends, the relevant terms and conditions, etc.

Clean-up day: those who hold shares before this day can receive this dividend; those who buy it on or after that day will not receive this dividend. For cash dividends, the opening price of the day will be minus the amount of the dividend per share.

Registration date: the company determines the list of shareholders who can receive dividends on this day, usually within 2 working days after the clean-up date.

Payout date: the company pays dividends on this day.

4. Suspension of trading

The suspension of trading of companies listed on the HKEx can be divided into two categories: active suspension and passive suspension. During the suspension, trading in the company's shares is suspended, and investors need to wait patiently for the resumption of trading.

Among them, voluntary suspension, that is, listed companies take the initiative to apply to the Hong Kong Stock Exchange for suspension, mainly because of the announcement of news that may cause substantial changes in share prices. For example:

1) share price sensitive company information is not disclosed in a timely manner, such as a rights issue or rights issue.

2) when the company receives the acquisition offer and needs to discuss with the major shareholders whether to agree to the acquisition, it will apply for suspension and need to announce to the public the details that the company is discussing a possible acquisition agreement.

3) some major transactions that need to be disclosed, such as when there is a significant change in the nature or control of the company's business, it is necessary to make a corresponding announcement or obtain the consent of shareholders, so trading will be suspended.

4) the company will file for bankruptcy, be taken over, be wound up or involve a major lawsuit or investigation.

The passive suspension of trading is when the HKEx finds that the company's share price has fluctuated abnormally or other irregularities, it will order the company to suspend trading. For example:

1) there are unreasonable and abnormal fluctuations in the company's share price and trading volume, and the HKEx cannot contact the company's contact person to confirm that the company does not know. If this happens, the company will be ordered to suspend trading in order to protect the interests of investors.

2) some people deliberately carry out market manipulation activities, resulting in abnormal fluctuations in the price or trading volume of the company's shares.

3) the company has failed to maintain the minimum public shareholding required by the HKEx.

4) the company's annual report could not be disclosed before the deadline.

5. Delisting

The delisting system of the HKEx has detailed standards and arrangements. for Hong Kong main board companies, there are generally three stages of delisting, each of which lasts for six months. if the listed company still fails to submit feasible resumption proposals, the listing status of the listed company will be cancelled, so delisting and delisting is actually a long process.

If the listed company fails to comply with the listing rules and the situation is serious, or if the HKEx considers that the listed company does not have sufficient business operations or valuable assets to guarantee that its securities can continue to be listed, the exchange will publish a notice and give a remedial period, at the same time, the company may be suspended first. If the company cannot make a remedy within a limited time, the exchange may delist it.

What if the stock you hold is delisted? The odds are that there will be a very great loss. Because the vast majority of passively delisted stocks basically have serious problems, such as financial fraud, bankruptcy liquidation and so on, investors need to choose stocks carefully to avoid stocks that may be delisted.

This section is about the introduction of some important events of listed companies in Hong Kong stocks. That's all. In the next section, we will continue to talk to you about some practical skills of investing in Hong Kong stocks.