A look at Savola rights trading, subscription mechanism

Savola Group headquarters

The subscription and trading of Savola Group’s rights starts today, Aug. 29, to increase capital by SAR 6 billion to SAR 11.34 billion from SAR 5.34 billion.

Under the rights trading mechanism on the Saudi Exchange (Tadawul), the rights will be listed and shareholders will be allowed to trade and subscribe to the rights during the daily trading hours, as applicable on Tadawul, through the sell and buy orders. In addition, the subscription will be available through the trading platforms.

For More IPOs

Savola plans to offer 600 million shares at SAR 10 each, through a SAR 6 billion rights issue.

Shareholders of record on Aug. 25 are entitled to the tradeable rights. Each right holder will be entitled to subscribe to the new shares at the offering price.

The mechanism of enhanced tradable rights approved in 2017 includes the following:

Shareholders’ Approval

After shareholders approve the capital increase through a rights issue, the share price is adjusted.

Tradable rights are deposited in the form of securities in the portfolios of registered shareholders. The rights will appear under a new code allocated to tradable rights. Trading or subscribing to the rights will only be permitted at the beginning of the trading and subscription periods.

The rights value in the portfolios of registered shareholders will not appear during the period preceding its trading. However, the rights number will appear. As for the rights value, Tadawul will constantly calculate and publish indicative values on its website throughout the period that precedes the trading of rights.

Trading and Subscription to Rights

Both trading and subscription will start simultaneously. Trading ends on the sixth day and subscription continues until the ninth day. 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, and then subscribe to the rights within the same period directly after the buying process is settled.

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) 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.

Rump Offering

In the event a portion of shares or fractional shares, if any, remain unsubscribed during the trading and subscription period, they 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.

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.

Savola rights issue will run until Sept. 5, while the subscription will end on Sept. 10.

The group aims to strengthen its financial position and support future investment portfolio through repaying its debts. After completing the rights issue, it will distribute its stake in Almarai to its shareholders through reducing capital.

In addition, the firm plans to use the offering proceeds to repay the short-term and long-term loans worth approximately SAR 5.95 billion.

Right Indicative Value and Price Limits

Indicative right value

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.
 

Tadawul will constantly calculate and publish the indicative value during the trading period on its website with a delay period of five minutes. In addition, the market 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

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: