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Enhanced Framework of Tradable Rights


INTRODUCTION

The Capital Market Authority “The Authority” and the Saudi Stock Exchange “Tadawul” have developed a mechanism for listing and trading Rights of companies listed in the market. The objective is to continuously develop and improve products and services provided to investors, and to introduce new tradable investment tools in order to diversify and expand available investment channels.
The Rights will be listed in the trading system and will be tradable during daily trading hours through buy and sell orders, in addition to allowing offering via the same trading system. Please click here to view the awareness booklet.

 

Terminology

TERM DEFINITION
Tradable Rights Tradable securities that entitle right holders to subscribe to new shares listed during a capital increase. These securities become an acquired right for all shareholders registered in the company’s records by the end of the Extraordinary General Meeting. Each right entitles its holder to a new share subscription at the offering price.
Registered shareholders Shareholders registered in the company’s records by the end of the Extraordinary General Meeting (EGM); also known as the “eligibility date”.
Right Price The trading price of a Right as determined by the supply and demand mechanism in the market.
Indicative Value of a Right The difference between the market value of a company’s shares during the trading period and the offering price.
Offering Price The value of subscription to new shares as specified in the prospectus.
New Shares Shares offered for subscription to registered shareholders as a result of a capital increase in the issuing company.
Exercise of the Right Subscription to new shares offered as a result of a capital increase in the issuing company.

DEFINITION OF TRADABLE RIGHT

Tradable Rights are tradable securities that entitle right holders to subscribe to new shares offered during a capital increase. All shareholders registered in the company’s records at the end of the Extraordinary General Meeting (EGM) are entitled to tradable rights. The EGM is convened for voting on the decision of the capital increase (‘Registered Shareholders’). Each Right grants its holder the eligibility to subscribe to a new share at the offering price.

SUMMARY OF THE NEW FRAMEWORK 

  1. Allocating one subscription period for all investors: All investors can subscribe in one phase instead of two separated Phases
  2. Introducing live subscription feature: Investors can subscribe immediately after the settlement of bought Rights.
  3. Subscribing through the trading platform: Similar to the buy/sell mechanism of shares, all investors may subscribe to Rights through the trading platform. This will be in addition to any other subscription channel provided by the broker - custodian.
  4. Shortening periods of Tradable Rights: The entire Tradable Rights process (starting from the EGM date until allocation) will be shortened to a maximum of 28 days instead of 34 days.

THE MECHANISM OF ENHANCED TRADABLE RIGHTS INCLUDES THE FOLLOWING PHASES:

1. After Holding the Extraordinary General Meeting (EGM):

  • EGM approval of capital increase through offering Rights:

    - Share price is adjusted;

    - Tradable Rights are deposited in the form of securities in the portfolios of registered shareholders, after holding the EGM. The Rights will appear in the portfolios of registered shareholders under a new code allocated to Tradable Rights. Trading or subscribing to these Rights will only be permitted at the beginning of the trading and subscription periods.

    Note: The value of these Rights in the portfolios of registered shareholders will not appear during the period preceding its trading; only the number of Rights will appear. As for the value of Rights, the Saudi Stock Exchange will constantly calculate and publish indicative values on its website throughout the period that precedes the trading of Rights.

  • Specify trading and subscription period:

    The EGM will specify one period for subscription (9 business days), including 6 business days of trading to allow all registered and non-registered shareholders to exercise their Rights. This will also be detailed in the updated prospectus and company announcements.

2. Trading and Subscription of Rights:

Both trading and subscription will start simultaneously until trading ends on day 6, while subscription continues until day 9. Registered shareholders will be allowed to subscribe to the new shares added in their portfolios, and sell a portion or all of the shares if they do not wish to exercise subscription. However, if registered shareholders are willing to subscribe to additional Rights, this can be facilitated through buying these Rights then subscribing to them.

Non-registered shareholders can buy Rights from their owners, then subscribe to these Rights within the same period directly after the buying process is settled.

According to the New Tradable Rights Mechanism, Registered Shareholders May Undertake One of the Following Options:

  1. Exercising the right to subscribe to all deposited Rights in order to maintain shareholder ownership percentages in the company;
  2. Selling all or a portion of the acquired Rights through the Market by placing sell orders through brokers operating in the Market. This option enables the shareholder to obtain financial indemnity for the total or partial sale of the acquired Right;
  3. Buying additional Rights through the Market. The system will enable placing buy orders (and sell orders as well) through brokers. All buyers are entitled to subscribe to the Rights any time after settling the bought Rights;
  4. Refraining from exercising or selling Rights. In this case, the remaining shares will be offered during the rump offering period, as a result of failing to exercise or sell the Rights.

According to the New Tradable Rights Mechanism, New Shareholders May Undertake One of the Following Options:

  1. Purchasing Rights during the trading period, then subscribing to these Rights immediately after settling the trade.
  2. Refraining from exercising Rights by the end of the subscription period. In this case, the remaining shares will be offered during the period of rump offering, as a result of failing to exercise or sell the Rights.

3. Rump offering period:

  • In the event a portion of shares or fractional shares, if any, remain unsubscribed during the trading and subscription period, these shares will be offered to a number of institutional investors at offering price at least. Institutional investors are obligated to submit buy offers for rump shares. Shares will be allocated to institutional investors with priority given to those with higher offers versus lower offers. Moreover, shares will be proportionally allocated to institutional investors that submit the same offer.
  • The subscription price of the new rump shares during this period will be limited to the offering price at minimum.
  • If the sale price of the rump shares is higher than the offering price, the difference, if any, will be distributed to holders of tradable Rights who did not subscribe to their Rights by their ownership percentage.

4. Allocation of Shares to Subscribers:

  • The prospectus will specify the period of allocation of shares to subscribers and the date of transferring the indemnities, if any.

Graphic Illustration of the New Tradable Rights Mechanism

RIGHT’S INDICATIVE VALUE AND PRICE LIMITS

INDICATIVE VALUE OF A RIGHT

The Right’s indicative value reflects the difference between the market value of the company’s share, during the trading period, and the offering price. For example, if the price of a share is SAR 45 (the adjusted price after the capital increase) and the offering price is SAR 10, then the Right’s indicative value equals (share’s market price - offering price) = SAR 35.

The Saudi Stock Exchange “Tadawul” will constantly calculate and publish the indicative value during the trading period on its website with a delay period of 5 minutes. In addition, Tadawul will provide other data published by Market Information Service Providers to enable all investors to review indicative values when entering orders.

Right’s indicative value = Share’s market value - offering price

DAILY PRICE LIMITS (TR)

There is a direct correlation between the company’s share price and the Right’s indicative value, as previously mentioned. Accordingly, the daily price limits of Rights trading are affected by the daily price limits of shares trading. The following example explains how to calculate the daily price limits of Rights:

Illustrative example

Item Value
Closing price of the company’s shares SAR 45
Share’s price rate of change SAR ± 10%
Share’s daily price limits SAR ± 4.5 (40.5-49.50)
Right’s closing price SAR 33
Offering price SAR 10
Right’s indicative value at closure SAR 35 (45-10)

Right's Daily Price Limits

Right’s daily price limits

(Right’s indicative value at closure ± Value of the variation of share price)

-------------------------------------------------------------------

Right’s closure price

-1

Based on the previous example, the Right’s daily price limits = +20%, -8%

Tadawul and brokers will update these rates on a daily basis after market closure, to enable shareholders to review the new rates on Tadawul’s website and broker’s websites.

Note: the minimum fluctuation rate of tradable Rights is ± 1%.

RIGHT’S TICK SIZES UNIT:

Tradable Rights follow the same tick size scale used for the price of shares. 

COMMISSION OF TRADING TRADABLE RIGHTS:

The trading commission is 12 Basis Points(BPS), with no minimum limit.

Illustrative hypothetical example:

A listed Saudi Joint Stock Company with 1 million listed shares at a market value of SAR 40 million has announced a capital increase to collect SAR 2 million as part of its Extraordinary General Meeting to support the company’s growth and expansion strategies through offering Tradable Rights. The company’s shareholders have approved the capital increase by offering one new share for each five shares at an offering price of SAR 10, equivalent to 200,000 new shares to be issued at the price of SAR 10 per share to collect SAR 2 million.

During the first day of subscription and trading of Rights, the opening price of tradable Rights will be equivalent to the share’s closing price on the previous day minus the offering price (SAR 37- SAR 10 = SAR 27).

Item Value
Total existing and issued shares before offering 1,000,000 shares
Closing price on the day of the Extraordinary General Meeting SAR 40
Market value SAR 40,000,000
Offering size 200,000 shares
Offering price SAR 10
Total offering value SAR 2,000,000
Offering coefficient 1:5 shares
Total existing and issued shares after offering 1,200,000 shares
Market value after offering SAR 42,000,000
Adjusted price after the Extraordinary General Meeting SAR 35
If the closing price of the company’s share on the day preceding listing the Right (for example) SAR 37
The Right’s opening price will be SAR 27

 

Item Description Value
MARKET VALUE BEFORE OFFERING Existing and issued shares x Closing price on the day of the Extraordinary General Meeting 1,000,000 x SAR 40 = SAR 40,000,000
TOTAL OFFERING VALUE At the request of the company SAR 2,000,000
OFFERING PRICE Based on the study and approval of concerned bodies SAR 10 per Right
NUMBER OF OFFERED SHARES

Total offering value

------------------------

Offering price

SAR 2,000,000

---------------------- = 200,000 shares

SAR 10

OFFERING COEFFICIENT

Number of offered shares

------------------------

Number of existing and issued shares

200,000

---------------- = 1:5 shares (20%)

1,000,000

TOTAL EXISTING AND ISSUED SHARES AFTER OFFERING Number of existing and issued shares + Number of offered shares 1,000,000 + 200,000 = 1,200,000 shares
MARKET VALUE AFTER OFFERING Market value + offering value SAR 40,000,000 + SAR 2,000,000 = SAR 42,000,000
ADJUSTED PRICE AFTER THE EGM CONVENTION

Market value after offering

----------------------------------

Total number of shares

SAR 42,000,000

---------------------- = SAR 35/share

1,200,000 shares

CLOSING PRICE OF THE COMPANY’S SHARE ON THE DAY PRECEDING OFFERING THE RIGHT For example SAR 37
RIGHT’S OPENING PRICE Share’s closing price - offering price SAR 37 - SAR 10= SAR 27

 

Frequent ask questions on Tradable Rights - According to The ENHANCED Framework 

  1. What are Pre-emptive Rights?

    Pre-emptive Rights are tradable securities issued by a Company which grant their holder the right to subscribe for new cash Shares offered upon the extraordinary General Assembly’s approval of the capital increase through the issuance of new Shares. Each pre-emptive right grants its holder the right to subscribe for one new Share at the offer price.

  2. Which Shareholders are eligible to receive Pre-Emptive Rights?

    All registered Shareholders in the company's share book at the end of the extraordinary general assembly meeting day.

  3. When are the Pre-emptive Rights deposited in Registered Shareholders' portfolios?

    After the extraordinary General Assembly’s approval of the capital increase through a rights issue, the pre-emptive rights are deposited as securities in the portfolios of the Registered Shareholders based on their eligibility and in proportion to the percentage they each own in the share capital, within a maximum of two (2) days from the date of the extraordinary General Assembly meeting. The pre-emptive rights will appear in the portfolios of Registered Shareholders under a new symbol that designates these rights, and cannot be traded and subscribed for except in accordance with what is disclosed in the Prospectus.

  4. How will the investor be notified of Pre-Emptive Rights Issuance?

    The investor is notified of the Pre-Emptive Rights through Tadawulaty portal and short text messages to be sent through the brokers.

  5. How many Rights will be granted to each registered investor?

    Based on their eligibility and in proportion to the percentage they each own in the share capital by the end date of the extraordinary General Assembly meeting.

  6. What is the calculation method to determine the exact number of rights for each registered investor?

    this will be calculated by dividing the number of offered shares by the number of existed and issued shares. For example, if the number of the issued shares of company (A) is 1000 shares and this company increased its capital by offering 200 new shares, the offering ratio will be 200/1000 = 1/5, therefore each registered investor will earn one right for every five shares.

  7. If an investor has more than one portfolio with multiple brokers, how will Rights be calculated for this investor?

    The investor’s share will be distributed on the portfolios owned by the investor according to the ownership rate in each portfolio at the same offering ratio announced by the company. In case of the presence of fractions, these fractions will be summed up and if they formed one or more integers, the integer will be added to the portfolio in which the investor owns the largest quantity of Rights.

  8. Will these Rights be added to registered investors' portfolios under the same name/code of the shares or there will be another name for them?

    The acquired pre-emptive rights will appear in the portfolios of Registered Shareholders under a new symbol that designates these rights, and cannot be traded and subscribed for except in accordance with what is disclosed in the Prospectus.

  9. What is the duration of trading and subscription?

    Both trading and subscription will start simultaneously until trading ends on day 6, while subscription continues until day 9. The trading period shall be determined in the prospectus and announcements of the issuing Company.

  10. What is the value of the Right at the beginning of trading?

    The opening price of the share will be the difference between the closing price of the company’s share on the day preceding the inclusion of the Right and the offering price (Indicative Value). For example, if the share’s closing price on the preceding day is SAR 35 and the offering price is SAR 10, then the opening price of the Pre-emptive Rights will be 35-10 = SAR 25.

  11. Can Registered Shareholders subscribe to additional shares?

    The Registered shareholders can subscribe to additional shares by buying new Rights during the trading period.

  12. How does the subscription process work?

    The subscription process occurs by the submission of subscription applications at any of the branches of the recipient bodies (mentioned in the prospectus) or through trading applications or any other channels the brokers provides to his clients.

  13. Are the holders of share certificates eligible to subscribe and trade?

    Yes, the holders of share certificates are eligible to subscribe, however, they can only trade after depositing the certificates in electronic portfolios through the recipient companies or the Securities Depository Center Company and provision of the necessary documents.

  14. Is the purchaser of additional Rights eligible to trade the additional purchased rights?

    Yes, the purchaser is eligible to sell the Rights and buy other Rights during the trading period.

  15. Is it possible to sell a part of these Rights in order to subscribe to the new shares?

    Yes, the investor can sell a part of these Rights and use the proceeds of this sale utilize the remaining Rights for subscription to the new shares.

  16. Is subscription possible during the weekend ?

    No, it is not possible.

  17. Can the holder of Pre-Emptive Rights sell or assign the Rights after the end of the trading period?

    No, the holder may not. After the end of the trading period, the holder will only be eligible to exercise their Right to subscribe to the capital increase or not. In case of refraining from exercising the Rights, the investor may be subject to loss or depreciation in their investment portfolio.

  18. What are the implications on holders of Pre-Emptive Rights who have not taken any action(s) during the subscription phase?

    In case of refraining from subscription to all of the new shares during the first and second phases, the remaining new shares will be offered for subscription to be managed by the subscription manager and the value of indemnity, if any, to the holder of Rights will be calculated after deducting the subscription value and any fees according to the standards specified in the prospectus.

  19. Will there be any additional fees charged for the processes of trading Pre-Emptive Rights?

    The currently applied commission on trading pre-emptive rights (buy/sell) is (0.0012) twelve basis points at maximum, which could be subject to change in future.

  20. Can unregistered shareholders subscribe to the additional offered shares?

    The unregistered shareholders can subscribe after buying the Pre-emptive Rights during the trading period.