Corporate Actions

When a listed company announces its financial results, it will also generally announce whether dividends will be paid.

Whether or not this affects the price of a related CBBC depends on whether or not dividends were expected and, if so, at what level and on what date. This is because the issuer considers past records of dividend distribution and the dividends expected by the market, when calculating the CBBC price.

Under normal circumstances, a CBBC linked to shares of a company will be adjusted if there is a capital adjustment of those underlying stocks (such as bonus issue, rights issue and restructuring event or spin-off / merger / consolidation). Specifically, an adjustment will be made to the call price, strike price and entitlement ratio according to terms specified in the relevant listing documents.

In the case of a merger/consolidation, an adjustment will be made to the call price, strike price and entitlement ratio of the CBBC of the company being merged or consolidated with. If the merger/consolidation results in an extinguishment of the current underlying, such underlying of the CBBC will change from the original underlying to a surviving/new underlying. Where there is a surviving company, no adjustment will be made to the CBBC of the surviving company.

It is possible that trading of shares of the entities undergoing a merger may be suspended for a period of time. The Listing Rules require suspension of CBBCs where the underlying stock is suspended. When this happens, the value of CBBCs may be adversely affected due to time decay during the suspension period. 

Under normal circumstances and for the purpose of calculating the value of the rights attached to the spin-off company, issuers will use volume-weighted average price (VWAP) of those auto-matched trades of that company on its first day of listing as the basis of adjustment. The adjustment will take effect from the day following the listing date. Investors should note that no adjustment will be made to those CBBCs that expire before the effective date of the adjustment.

Depending on circumstances of the case, CBBCs may be suspended from trading from the ex-entitlement date to the listing date of the spin-off company. In this case, the value of CBBCs may be adversely affected due to time decay during the suspension period.

Similarly, depending on circumstances of the case, the observation period for CBBCs may be suspended from the ex-entitlement date to the listing date of the spin-off company. Thus, no mandatory call event will occur during such period.