Santander rights issue: everything shareholders need to know –

Santander’s 1.4m British shareholders are set for cash payouts as a result of the Spanish-owned bank’s need to raise more money. But the value of their holding in the bank is expected to fall as a result of the transaction.

Information packs are being sent to shareholders now.

Most of the British shareholders came into ownership of the shares via the demutualisation of former building societies Alliance & Leicester and Abbey National, which later became part of Santander.

British investors do not hold Santander shares directly – instead they are invested via CREST Deposit Interests (CDIs).

These are a type of share that represents a stock traded on an exchange outside the UK. In this case, Santander’s stock is listed in Madrid.

While UK CDI holders are set to benefit from the capital-raising – known as a “rights issue” – they are not being given the same options as a regular shareholder. 

Here’s all you need to know.

Why is the rights issue happening?

Santander recently acquired its struggling competitor Banco Popular for €1 in a deal overseen by EU regulators to avoid a collapse.

The cash from the rights issue will be used to shore-up Banco Popular’s finances.

Do I need to do anything?

In this case, no. In a typical rights issue, shareholders are given the opportunity to buy additional shares at a discounted price. The number available to any given investor depends on their shareholding.

In a one-to-10 rights issue, one discounted share could be bought for every 10 existing shares. That is the case here: every 10 CDIs equals the right to buy one new CDI. 

The issue of new shares then dilutes the value of the existing shareholding. So the value of the discount needs to outweigh the impact of the dilution for there to be a net benefit.

Usually, investors have three options: they can exercise their rights to buy discounted shares, ignore their rights (not generally advisable, as existing shareholdings will be diluted in value), or sell their rights for cash.

However, in this case Santander has arranged an automatic sale of the rights of UK investors holding CDIs. 

It says that the tight timetable for rights issues in Spain and the massive number of shareholders mean it is not feasible to offer UK investors the opportunity to exercise their rights.

This issue cropped up previously, when the bank raised a similar amount nearly a decade ago.

If you are an investor, you should already have received a letter from the Santander Nominee Service explaining the process.

How will I be paid?

The rights themselves are listed abroad, and will be sold in euros. All participants will receive the average price per right sold.

 The proceeds will be converted into sterling, and paid to all investors via cheque sent to their registered address. No other form of payment is possible.

Santander is covering the fees, including brokerage costs and currency conversion.

For those who want to invest the proceeds back into Santander, additional dates are being added in August and September where investors will be able to buy CDIs without paying brokers’ fees.

Details of the dates will be included with the cheque. 

What happens to my existing holding?

Your existing holding will remain the same in structure, but will have its value diluted due to the issuance of the new shares. 

It is impossible to say exactly what will happen to the share price, but if 100pc of the shares issued are bought, existing investors will see their holding diluted by up to 9.1pc, according to Santander’s own estimations.

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