Q. I own 1272 WBC shares, yesterday I received the offer document to buy shares in Westpac at a discount price of $25.50 per share. Should I consider buying the shares? How many can I buy? What happens if I don’t take up the offer?
A. On the 19 October, Westpac announced that it is looking to raise approximately $3.5 billion in a rights issue.
If you owned shares in Westpac on the 19 October 2015, you are entitled to participate in the capital raising. If you acquired shares after this date you are ineligible.
For eligible shareholders, you will be entitled to buy 1 share for every 23 Westpac shares you own at an offer price of $25.50 per share. Entitlements are rounded up to the nearest whole number of shares. So in your case you will be eligible to purchase up to 56 shares. The additional shares will rank equally with existing shares.
You are not obliged to take up your full entitlement to the offer. You will have the right to sell or transfer all or part of your entitlement prior to the closing date. You can trade your rights on the ASX up until 4 November. The ASX code will be WBCR. If you do not take up the offer or sell or transfer the rights prior to the closing date, your entitlements will be sold on your behalf without brokerage as part of the retail book build. You will receive any proceeds of the sale (if there are any) around 24 November. The closing date to accept the offer is 11 November.
The advantage of participating in this type of offer is that you have the opportunity to acquire additional shares in a company usually at a discount to current market price. This is to encourage existing shareholders to participate in the offer. In this case, the offer represents a discount of approximately 13% to the dividend adjusted “Theoretical ex-rights price (TERP)” price of $29.33.
The offer price is fixed and the discount to market price will vary depending on the prevailing market price of WBC shares at the time of the offer close. WBC shares are currently trading around $32. If the WBC share price was to fall below the offer price, there would be no discount to the market price and in fact you would pay a premium to market to participate.
Normal rules apply for Capital Gains Tax purposes, so if you were to sell the shares into the future, the cost base of the shares will be the price you paid. Make sure you retain records of the purchase for future reference. As an individual, if you hold the shares for less than 12 months, you will not be entitled to the 50% discount on the Capital Gains.
Rights issues increase the number of shares on issue and may have a dilutive effect on earnings per share and may impact future dividends.
The risks associated with participating in this type of offer are contained in the offer document. All investors should read this section of the document and determine if investing is appropriate to their circumstances. Your offer document will include an information sheet outline your individual entitlements.
Visit the Investor Centre link at www.westpac.com.au for further information and an online copy of the offer document and entitlement calculator.