Karantaka bank bonus shares query

#1
"MUMBAI, SEP 13 (TickerNews Service): Karnataka Bank Ltd Monday said it has got shareholders approval for issuing two new shares for every five held on a rights basis.
The bank's shareholders gave approval to up to Rs 100 per share rights share issue at an extraordinary general meeting held today, Karanata Bank said in a filing with the National Stock Exchange."

More on...
http://money.sulekha.com/karnataka-...-nod-to-2-for-5-rights-share-issue_news_13609

I have shares of karnataka bank bought at Rs 180, the current price is 175.
Could anyone explain what will be the new cost of the shares?
Will it be Rs 175 as well or all shares will be reduced to Rs 100?
In other words, am I at a loss because of this or profit or neither?
 
#4
I have read it but I am stil confused.
If I this stands true-
"Price Of Presently Listed Shares Shall Not Change"
then does it simply mean that it will not affect the current price?
 

asnavale

Well-Known Member
#5
"MUMBAI, SEP 13 (TickerNews Service): Karnataka Bank Ltd Monday said it has got shareholders approval for issuing two new shares for every five held on a rights basis.
The bank's shareholders gave approval to up to Rs 100 per share rights share issue at an extraordinary general meeting held today, Karanata Bank said in a filing with the National Stock Exchange."

More on...
http://money.sulekha.com/karnataka-...-nod-to-2-for-5-rights-share-issue_news_13609

I have shares of karnataka bank bought at Rs 180, the current price is 175.
Could anyone explain what will be the new cost of the shares?
Will it be Rs 175 as well or all shares will be reduced to Rs 100?
In other words, am I at a loss because of this or profit or neither?
Hi Wallstreet,

KTKBANK will issue rights shares at a price not exceeding Rs. 100. Only those who have shares in their account on record date (to be announced later) are eligible to apply. They are eligible to apply for 2 rights shares for every 5 they are holding on record date. If you have 100 shares, you can apply for 40 shares. If you are not interested in applying, you can sell your rights eligibility at a price.

The new cost after rights issue depends on the view of the traders about the actual current market value of the shares. The current market value of Rs 175-180 includes a premium for rights associated with the shares. For example, if the true market value is 140, the current value includes a premium of Rs 40 for rights. Therefore the share price will fall after the rights.

About 5-6 years back, KTKBANK issued rights in the ratio of 1:1 at the rate of Rs 20 per rights share. At that time, the market price was about Rs 220. After the rights the price fell to around Rs 100-120. Before the news of Rights at that time, the market price of KTKBANK shares was about 100-120. So, after rights the price came down to the same level. (Later it went down lower, that is a different matter). If we use this data, we can calculate as follows:

Price just before RIGHTS : 220
Rights Price: 20
Therefore, after rights you have 2 shares worth Rs 240 (220 + 20) which is Rs 120 per share. Same as the price which was prevailing before rights news.

For the current rights you can calculate similarly:

The price before announcing Rights may be assumed as about 140. (If you see the price a couple of months back)
Currently the price is 175. Five shares today cost 175 X 5 = 875
For these 5 shares you get 2 rights shares at a price of 100 each. So the two rights shares cost 200. In all you have 7 shares worth 875 + 200 = 1075. This works out to around 153.6 per share. If there is a change in overall market sentiment then the actual price will be different.

For actual price we have to wait and watch.

-Anant
 
#6
Thankyou, i think I will exit Karnataka bank at a loss of Rs 5.

Hi Wallstreet,

KTKBANK will issue rights shares at a price not exceeding Rs. 100. Only those who have shares in their account on record date (to be announced later) are eligible to apply. They are eligible to apply for 2 rights shares for every 5 they are holding on record date. If you have 100 shares, you can apply for 40 shares. If you are not interested in applying, you can sell your rights eligibility at a price.

The new cost after rights issue depends on the view of the traders about the actual current market value of the shares. The current market value of Rs 175-180 includes a premium for rights associated with the shares. For example, if the true market value is 140, the current value includes a premium of Rs 40 for rights. Therefore the share price will fall after the rights.

About 5-6 years back, KTKBANK issued rights in the ratio of 1:1 at the rate of Rs 20 per rights share. At that time, the market price was about Rs 220. After the rights the price fell to around Rs 100-120. Before the news of Rights at that time, the market price of KTKBANK shares was about 100-120. So, after rights the price came down to the same level. (Later it went down lower, that is a different matter). If we use this data, we can calculate as follows:

Price just before RIGHTS : 220
Rights Price: 20
Therefore, after rights you have 2 shares worth Rs 240 (220 + 20) which is Rs 120 per share. Same as the price which was prevailing before rights news.

For the current rights you can calculate similarly:

The price before announcing Rights may be assumed as about 140. (If you see the price a couple of months back)
Currently the price is 175. Five shares today cost 175 X 5 = 875
For these 5 shares you get 2 rights shares at a price of 100 each. So the two rights shares cost 200. In all you have 7 shares worth 875 + 200 = 1075. This works out to around 153.6 per share. If there is a change in overall market sentiment then the actual price will be different.

For actual price we have to wait and watch.

-Anant
 

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