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IT subscription shares ???

Closed-end funds and OEICs
Amaryllis
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IT subscription shares ???

#23434

Postby Amaryllis » January 16th, 2017, 10:35 am

As part of my SIPP I own shares in the JPMORGAN SMALLER COS IT PLC TRUST

AJ Bell Youinvest have sent me a message about subscription shares for this trust:

Each subscription share entitles the holder to subscribe for one ordinary share of GBP0.25 at a price of GBP9.15. Holders have the opportunity to exercise on a monthly basis until 27 June 2017.

I'm afraid I know very little about subscription shares, other than they can be advantageous or risky, based on the strength of the underlying company. So I am wondering whether to subscribe or not.

I would welcome any comments or pointers! Also, what actually happens if one subscribes?

Arborbridge
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Re: IT subscription shares ???

#23470

Postby Arborbridge » January 16th, 2017, 12:15 pm

Amaryllis,

It's a long time since I had to face this problem! As I remember it, there's a price one pays to convert the subscription shares, so to work out whether it's worth doing you need to add whatever all the costs are - it should be explained in the paperwork they sent you, otherwise phone them up. I seem to remember, there will be an extra payment to make at some conversion date in the future -so this might involve a gamble on what the price will be then.
Sorry, my memory is a bit hazy - I'm sure someone else will come on with more detail.

Before that, however, decide if you want any more of that particular IT.

genou
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Re: IT subscription shares ???

#23481

Postby genou » January 16th, 2017, 12:52 pm

Amaryllis wrote:As part of my SIPP I own shares in the JPMORGAN SMALLER COS IT PLC TRUST

AJ Bell Youinvest have sent me a message about subscription shares for this trust:

Each subscription share entitles the holder to subscribe for one ordinary share of GBP0.25 at a price of GBP9.15. Holders have the opportunity to exercise on a monthly basis until 27 June 2017.

I'm afraid I know very little about subscription shares, other than they can be advantageous or risky, based on the strength of the underlying company. So I am wondering whether to subscribe or not.

I would welcome any comments or pointers! Also, what actually happens if one subscribes?




A quick look JPM's web site suggests that you were issued these as a bonus in March 2015, which would mean that AJBell are asking you whether you want to convert any into Ordinaries. As they currently trade at £8.30, buying at £9.15 looks a little foolish.

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Re: IT subscription shares ???

#27014

Postby Kidman » January 28th, 2017, 6:04 pm

Amaryllis,

a subscription share is similar to a warrant. Typically investment trusts issued warrants on a one for five basis when they floated years ago but that practice hasn't been around for quite a few years now.

A subscription share give the shareholder the right, but not the obligation, to buy an ordinary share at a fixed (in advance) price. Typically there will be several annual opportunities to subscribe before they expire. I have seen some where the exercise price is different for each year.

I suspect AJBell has forwarded to you an annual noticifcation and I would expect for subscription shares issued so recently there will be a few more opportunites in future years. After the final date they will either expire worthless or the company may exercise them for you, sell the ordinaries and send out the 'profit' after their costs have been accounted for.

As genou points out, they are 'out of the water' at present. Why exercise a subscription share when one can buy the same share cheaper in the market?

Subscription shares are traded which adds some opportunities. People buy them for a leveraged punt on the underlying ordinary share price going up without having to shell so much cash out. Alternatively, you could sell yours and take the cash or buy some ordinary shares. Generally with small numbers it is not worth the dealing costs to switch to the ordinaries although that may mean getting a dividend which the subscription shares won't pay. The price for subscription shares is market-determined but as a basis for fair value one can use a Black-Scholes calculation as with a call option.

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Re: IT subscription shares ???

#27046

Postby Lootman » January 28th, 2017, 9:44 pm

Kidman wrote:Subscription shares are traded which adds some opportunities.

Is that always the case? I feel sure I received some subscription shares recently that had no intrinsic value and which were not tradeable. They simply were an invitation to invest more money which I could either accept or decline. And, as you say, there is no reason to do that unless the subscription price is below the market price on the effective date.

With warrants, rights and call options, they are tradeable and do have a market value as you note. One thing to be aware of is that they also have "time value" meaning that the price of the derivative will usually exceed the market price of the underlying minus the strike/subscription price. As time decays as we approach expiry, that premium to intrinsic value declines to zero.

Kidman
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Re: IT subscription shares ???

#27143

Postby Kidman » January 29th, 2017, 12:13 pm

Is that always the case?


In my experience, yes, when the company is a listed company such as an investment trust.
However, they don't have to be traded, it is up to the issuer as to whether they want to go through all the requirements to have them listed.

I have had warrants from private (not listed) companies and those warrants were not listed. In theory they could have value and be traded if they are transferable securities but then there is the problem of matching willing seller to willing buyer!

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Re: IT subscription shares ???

#27490

Postby Lootman » January 30th, 2017, 2:14 pm

Kidman wrote:
Is that always the case?

In my experience, yes, when the company is a listed company such as an investment trust. However, they don't have to be traded, it is up to the issuer as to whether they want to go through all the requirements to have them listed.

I remember now. It was the Atlantis Japan IT, which did a subscription share issue in 2016. The subscription shares were not tradeable but obviously held value if the market price of the IT rose above the subscription price, which they did.

I therefore subscribed but, had I not done so and let the rights expire, I believe that the trustee of the issue would have subscribed to all the lapsed rights, sold the newly issued shares and then remitted the net proceeds to the owners of the lapsed rights.

So the shareholder does get the value of those subscription rights after expiry, but could not trade them during their life.

PeterBill
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Re: IT subscription shares ???

#27515

Postby PeterBill » January 30th, 2017, 2:56 pm

I would welcome any comments or pointers! Also, what actually happens if one subscribes?


As genou has pointed out ...

A quick look JPM's web site suggests that you were issued these as a bonus in March 2015, which would mean that AJBell are asking you whether you want to convert any into Ordinaries. As they currently trade at £8.30, buying at £9.15 looks a little foolish.


You can buy the Investment Trust cheaper in the market so the Subs currently have little value and may expire worthless ... JMI has to increase by about 28% before JMIS has any value


Some discussion and info here;

http://uk.advfn.com/cmn/fbb/thread.php3?id=1171493

http://uk.advfn.com/cmn/fbb/thread.php3?id=40667442

Cheers,
PB


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