# Ceasing to be a substantial holder - wording misleading?



## shyguy (26 May 2011)

often you will see an announcement wth "ceasing to be a substantial holder"...

but when you read the pdf it can sometimes say that that person/company has actually bought more shares... so why do they title it as they do? or does it mean that they were a substantial holder and then even though they bought more shares the total has changed and hence there percent ownership is actually less now???

i dont get it....??


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## pixel (26 May 2011)

shyguy said:


> often you will see an announcement wth "ceasing to be a substantial holder"...
> 
> but when you read the pdf it can sometimes say that that person/company has actually bought more shares... so why do they title it as they do? or does it mean that they were a substantial holder and then even though they bought more shares the total has changed and hence there percent ownership is actually less now???
> 
> i dont get it....??



 You're on the right track:
Assume a company issues more shares via a rights issue; for simplicity's sake assume the new issue will double the number of shares issued from 100M to 200M.
A "substantial" holding is one that has at least 5% of the number on issue; so before the rights issue, a substantial holder may have 6M, being 6% of the old 100M. If he wants to maintain at least 5% of the new number, he'll have to buy 4M to bring his total up to 10M or 5% of the new 200M. If he only buys 3M or less, his number of held shares may well increase quite a bit, but in terms of the new percentages it's no longer "substantial".


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## shyguy (26 May 2011)

and if they issue more shares then im assuming they dont necessarily need to issue an announcement stating that all of these people are no longer substantial holders? so it only comes out when they buy or sell...?

is there any benefit in making sure they are classified as a substantial holder? other then simply more percentage...?


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## pixel (26 May 2011)

shyguy said:


> and if they issue more shares then im assuming they dont necessarily need to issue an announcement stating that all of these people are no longer substantial holders? so it only comes out when they buy or sell...?
> 
> is there any benefit in making sure they are classified as a substantial holder? other then simply more percentage...?



 It's a legal requirement: Once you hold more than 5%, you MUST notify the ASX within 3 working days of any changes up or down.


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## burglar (26 May 2011)

shyguy said:


> and if they issue more shares then im assuming they dont necessarily need to issue an announcement stating that all of these people are no longer substantial holders? so it only comes out when they buy or sell...?
> 
> is there any benefit in making sure they are classified as a substantial holder? other then simply more percentage...?




I'm curious! 
If you are not a substantial holder, why would you need to know the intricacies?

@v@


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## shyguy (26 May 2011)

burglar said:


> I'm curious!
> If you are not a substantial holder, why would you need to know the intricacies?
> 
> @v@




just curious about how it may affect the bigger picture fundamentally....


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## Tyler Durden (26 May 2011)

pixel said:


> It's a legal requirement: Once you hold more than 5%, you MUST notify the ASX within 3 working days of any changes up or down.




Just wondering, assuming one buys a large amount of shares in a company, though not quite 5%. If they participate in DRP, wouldn't they eventually over the years become a substantial holder?


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## pixel (26 May 2011)

Tyler Durden said:


> Just wondering, assuming one buys a large amount of shares in a company, though not quite 5%. If they participate in DRP, wouldn't they eventually over the years become a substantial holder?



 As soon as they do, they're *obliged* to send a "substantial holder" notice to the ASX for publication. *It's The Law.*
Some Registrars will have an early warning system in place that collates people's holdings and makes them aware if they approach that threshold. But if you're a well-heeled investor, maybe with different holdings and directorships, it's part of your duty to make sure your holdings are tallied. 

The reason why such laws exist ought to be obvious: Fellow Holders - especially the little ones - may wish to know, whose interests are aligned with theirs, or it may put them off to know that such-and-such is building a stake in "their" company. Call it one piece in the fundamental puzzle, or one step toeards a level playing field.
I simply accept it as one of those "If you want to play the game, you have to know the rules" things.


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