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Corporate Exercises

A corporate action goes beyond the “what”. It is also about the “when”. When a corporate action happens, you will encounter terms such as ex-date, record date, entitlement date, cum date and book closing date.

While these terms actually have very simple meanings, they can have an impact on your stocks that are undergoing corporate actions, or the stocks that you intend to buy. Once locked into your financial dictionary, you will have a deeper understanding and greater appreciation of corporate actions.

Announcement date: When a company plans a corporate action, it will first make an announcement to its shareholders. The announcement will highlight what the corporate action is all about, and when it will take place.

As a well-informed investor, you should take note of the announcement. Check the company website for further details or visit the Bursa Malaysia website which will also give general details on the corporate action to be undertaken.

Cum date: Cum date is the last date the particular stock is traded at market price before the corporate action takes effect. What this means is, you will be able to buy and sell the particular stock based on the market price until the cum date.

The corporate action will take effect the next day, so there would be an impact on the price of the share the next day.

Ex-date: This is the date when the stock price reflects the adjustment made after undergoing certain corporate actions.

To receive the necessary entitlements through corporate actions, you must purchase the stock before the ex-date. If you purchase a stock on or after the ex-date, you will not receive the entitlements.

Book closing date (BCD): A cut-off date is implemented so that the final shareholders of the particular stock can be identified to ensure they receive the necessary entitlements from the corporate action.

For example, if a company announces book closure date to be Dec 1, 2007, then those who own the stock as of Dec 1, 2007 will be entitled to the dividend/bonus/split benefit.

Payment date: This is the date on which a declared stock dividend is scheduled for payment. Only shareholders who bought the stock before the ex-date will receive the dividend on the date of payment.

Let’s look at a corporate action undertaken by Mesdaq-listed My E.G. Services Bhd (MYEG). This company sought to issue a one-for-one (1:1) bonus issue to its shareholders on Nov 19, 2007. As required, it made the necessary announcements prior to the corporate action on Oct 31, 2007.

As the company intended to list the bonus shares on Nov 19, 2007, it announced Nov 16, 2007 as the book closing date (BCD).

MYEG then set the ex-date on Nov 14, 2007 or two market days prior to the BCD. Thus, to be entitled for the bonus issue, you must buy MYEG shares before the end of trading on Nov 13, 2007 or the cum date.

For example, if you had purchased 100 shares in MYEG on cum basis on Nov 13, 2007, you will receive an additional 100 shares when the market closed on Nov 16, 2007.

As a result of the bonus issue, 200 MYEG shares will now reside in your CDS account on the night of Nov 16, 2007 being the BCD.

Investors who are entitled to receive MYEG bonus issue shares may sell any or all of their MYEG shares arising from the bonus issue beginning the ex-date (Nov 14).

In the market, timing is important, but information is crucial. Happy investing!

l For more info, log on to www.bursamalaysia.com

Source: The Star, 30 November 2007

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