My Account Store Store

Rights Distribution: HSBC



Issue: How do I enter the HSBC rights distribution?

Cause: HSBC issued rights to purchase new shares of HSBC at a discount to current shareholders to help recapitalize the bank.
The prospectus for the rights offering can be found at the following web address:
http://www.hsbc.com/1/PA_1_1_S5/content/assets/investor_relations/hsbc_rights_issue_prospectus_us.pdf
Shareholders received 5 rights for every 12 shares of the bank owned.

Resolution:

The rights traded in London as a separate security. US shareholders had three options:

  1. Sell the rights on the market
  2. Let the rights expire
  3. Exercise their rights

HSBC would sell expired rights and return the proceeds minus costs to the rights holders. To complete this transaction we first spin-off the rights from the parent, then treat the rights as an option. Different transactions will be needed to complete this transaction depending on the decision made concerning the rights.

The spinoff of the rights – This will be treated as a normal spin-off. If you are unfamiliar with spin-offs go to http://www.iclub.com/support/kb/default.asp?page=normal_spinoff for information. Here is the information you need to enter this spin-off.
  • Date: March 20, 2009
  • Parent Company: HSBC Holdings (HBC)
  • Remaining basis percentage: 81.46
  • Spinoff Security: HSBC rights (HSBN was symbol used on London exchange)
  • Shares Received: (# of HBC shares owned) x (5/12) OR (# of HBC shares owned) x .41667 For example: 100 shares x .41667 = 41.667 rights received.
  • Price per share of HSBC rights: 14.33
  • Cash Received: Check your broker statement for cash-in-lieu received. Only rights for full shares were distributed.

Remember to include the fractional shares in the shares received. When you save the transaction they will be sold for the cash received.

How to handle either the Sale or Expiration of the rights - Treat this as a normal sale. The date will vary depending on if the rights expired or you sold the rights on the open market. Rights expired on 3/31/2009, so a sale from expired rights should have occurred around this time. The total received will be on your broker statement.

How to handle the Exercise of the rights - This is a bit more complicated and will take 2 transactions to complete.

  • A sale of the rights for the exact amount of their cost basis.
  • A purchase of the new shares and an addition of the proceeds from the sale of the rights to the purchase price of the new shares.
The rights sale – Find the cost basis of your rights. This can be found on a valuation statement, if one was prepared that included the rights, or from a Security transaction History report for the HSBC rights. Use the total cost basis amount as the sale total for the sell transaction. Choose the Suspense account to receive the cash from the sale. Sell all shares. You want to have no gain or loss from this sale.

New purchase from rights offering - Transfer the total amount paid for the new shares from your broker account to the Suspense account. It will be easier to include commissions and fees. Make a note about rights offering purchase. Now enter a regular buy transaction but use the total in the Suspense account as the total purchase price. This way the cost basis of the new shares will include the value of the rights. Complete the buy transaction and you are done.


What if you exercised a part of you rights but not all of them?

First, if you are the treasurer, you should be getting special kudos from your club for putting up with this. This adds just another couple of steps. You need to split the rights proportionally. For example, you exercised half of your rights. Sell half of the rights for their cost and add the proceeds to the purchase price of the new shares. Sell the other half that expired for whatever you received from the broker.



 
  
About    Press    Management    Privacy Policy    Terms of Service    Contact

copyright © 1989 - ICLUBcentral Inc. or its affiliates