Don’t take rights issue lightly

WHAT IS A RIGHTS ISSUE AND HOW DOES IT WORK?

A: Simply put, a rights issue is an invitation to existing shareholders to purchase additional shares in the company. The incentive to shareholders is that the prices of the shares offered under the rights issue is discounted to the market price at the time of the announcement of the issue.

In the recent past there have been quite a few rights issues. CCMB is the most recent but prior to that there was GHL, BWIA and PLIPDECO. In each instance a right to acquire new shares was attached to the ownership of existing shares.

For example a one for ten rights issue would entitle you to one share in the rights issue for every ten shares that you currently own. If the share price is currently $10 per share, the shares in the rights issue could be offered at $7 giving the shareholder the incentive to acquire the shares at a discount to the market value at the time of the rights issue announcement.

Most often a company uses a rights issue to raise capital. This capital can be used for any purpose, but for a rights issue to be successful the company has to demonstrate that the proceeds of the rights issue will allow for an increase in shareholder value in the coming years. Funding new projects, or acquisitions and or paying down debt are some common examples of how rights issue funds are used.

Q: WHAT IS THE DIFFERENCE BETWEEN CORE INFLATION AND HEADLINE INFLATION?

A:Inflation has gotten a lot of press in recent time and many would have referred to the term core inflation and headline inflation. Before explaining the difference let’s start with inflation itself.

Inflation is measured by comparing the price of a basket of goods and services over time. The movement in prices of the overall basket of goods gives an indication of headline inflation. However there are items such as food, energy and other commodities whose prices are volatile, changing from one period to another.

This volatility can make it difficult for governments and central banks to plan, since by the time they develop a policy to deal with higher energy prices the price of oil could decline resulting in unintended consequences for the economy. To counter this, another measure was established called core inflation. This used the same basket of goods and services - except that volatile goods were removed from the calculation.

One point to note is that if headline inflation is consistently high then ignoring this measure and focusing on core inflation can lead to a slowness to respond to problems in the economy which can prove troubling over the long term. This is what we are facing right now in TT.

Q: A FRIEND OF MINE HAS BEEN ENCOURAGING ME TO DEPOSIT MY SHARES INTO THE TRINIDAD AND TOBAGO CENTRAL DEPOSITORY. WHAT IS THAT AND WILL MY SHARES BE SAFE?

A: This is another question with an answer that can be taken directly from the Trinidad and Tobago Stock Exchange website.

The Trinidad and Tobago Central Depository (TTCD) is a separate company set up by the Stock Exchange. Your share certificates can be deposited in the TTCD and these will be credited to an account in your name. This is a very similar process to taking your money, the certificates and depositing it in a bank.

If your money is deposited in a particular bank you need to use that bank in order to access those funds. In the same way when you lodge your shares in the TTCD, those shares have to be lodged through a stockbroker and if you need to sell those shares then you need to contact that broker in order to effect the transaction.

Every quarter you should get a statement from the TTCD indicating the shares in your portfolio. Any shares that you deposit should be recorded in that statement. Your shares are safe in the TTCD since the TTCD itself, your broker and you will have the details of the transaction. Further the company whose shares you own will also have a record of your ownership via their share registrar. These and other checks and balances in the system should give you comfort.

All advice offered here by Republic Securities Limited is of a general nature and is intended for guidance only. It is offered without any legal responsibility.

You should always consult a financial adviser either at Republic Securities or elsewhere before making any investment decision.

If you have an investment question you would like to put to Republic Securities then send us an email at rslinfo @republictt. com