What are the SWS recommended rules/criteria around entitlement offers? How are they handled in the SPA3 Investor PP? Refer query re NXT in 15/4 weekly wrap.
I (and presumably others?) held NXT last week in SPA3 Investor when the EO was announced. Offer applies to holdings on 15/4. The offer is 1 for 6. Price is $15.40. It is non-renounceable so the EO shares are not tradeable i.e. have no value if you don’t take them up. To complicate matters, subsequently NXT was a sell signal on 16/4 and exited on 17/4.
If one does take them up then this ‘distorts’ the EW strategy and, in this case, would become a small +1 position holding?
I have concluded that EO’s should not be taken up and if there is any cash value (renounceable) then this can be received as cash into the PF account for investing in a future buy signal.
Entitlements will have an expiry date in the future at which the offer expires. So, whilst the offer is available to all shareholders holding NXT on 15th April, we wont know if NXT will be an open trade on the date of the expiry on May 2nd, 2024.
For these reasons we wouldn’t participate in any entitlements as being provided shares in a company that is in a closed status would be against the mechanical rules based criteria of SPA3 Investor.
Often times entitlements are renounceable meaning that they can be sold on the market and received as cash into your portfolio.
“By allowing your Entitlement to lapse, you will forgo any exposure to increases or decreases in the value of the New Shares had you taken up your Entitlement and you will not receive any value for your Entitlement. Your interest in NEXTDC will also be further diluted as a result of the Entitlement Offer.”
We won’t be taking up the offer and it has no impact on the mechanical process. Just another factor in the sea of variables that moves prices.