Keppel O&M merge with SCM

How do we ensure that the adjusted cost base for Keppel is accurately reflected after the spin-off of SembCorp Marine? It is not a stock split or a dividend, it is a spin-off which reduces the NAV of Keppel by the value of the SembCorp Marine shares. Without recording this correctly, one’s Keppel position will be incorrectly underwater.

In the above recommendation, the way we try to “account” for it is with the dividend override.
It is assuming the Keppel sold of part of the business and paid you dividends but force you to buy SembCorp Marine shares.

I see that, and maybe I am missing something, but it still doesn’t cover the permanent reduction in NAV for Keppel. If I buy a share at $5 and the company spins out assets worth $2, the adjusted cost base should be $3.

My original buy transaction is at $5, and a dividend does not reduce that cost. You are accurately reflecting the new SembCorp Marine shares by creating a buy transaction at the notional price, it just seems like we are missing the other side of the ledger.
In countries that tax capital gains (not Singapore) this is a big deal because you would be paying tax on the original cost instead of the adjusted cost.

Hmm… The permanent reduction in NAV is kinda account for by giving out dividends but yes it is only in the context of StocksCafe accounting so that the P&L + Div is reasonable and not the P&L itself :frowning:

If we really want P&L itself to also looks okay, I would think we would need to sell Keppel (at maybe the price before the event) and then buy both Keppel and Sembcorp to adjust the cost basis of Keppel.

Happy to hear if you have other suggestions :slight_smile:

It is tedious if done manually. For instance, it is not uncommon for a dividend in Singapore to be a combination of return of capital and earnings. With a capital gain tax, you would need to reduce the cost of the stock by the amount of the return of capital each time you received a payment.

My overseas brokers seem to do this automatically, but trying to maintain the adjusted cost base manually for a whole portfolio seems like too much work.

If I do the sell/buy work around, it would give the correct outcome, so I guess that is the best choice. All the reporting would be off if this is not done.

Is there a general consensus on what the correct stock prices would be for each counter? The SembCorp shares should be priced at the spin-off value, not the market…

We actually created this feature to handle the standard stock split → One Click To Handle Stock Splits – StocksCafe Blog

In this instance is a bit different in the sense that it is splitting part of it into another stock hence it cannot be automatically handled in StocksCafe without making various assumptions.

The only article I know is provided by @ralphlim7 above → Keppel announces distribution of 19,100 SembMarine shares for every 1,000 Keppel shares

This is found in sgx announcement page, there are no mention of spinoff value. Even the 19.1 is appox, the actual number seems to be 19.085

If you want to maintain the “similar” cost for Keppel, I think the following make best sense to me.

  1. Sell Keppel at the cost you bought at on 22 Feb.
  2. Buy Sembcrop at market value of 22 Feb (i.e. price = 0.134) on 23 Feb.
  3. Buy Keppel back at the cost you bought at minus the market value of Sembcrop (i.e. 19.1 x 0.134 assuming you actually got 19.1 because it might be different due to rounding) on 23 Feb.

just for completeness, here are the instructions from Quicken (bookkeeping software)
How do I record a corporate spin-off of new securities?

A corporate spin-off can require shares of the new company to be issued to those who own shares of the original company. Use the Corporate Securities Spin-off dialog to record these changes in Quicken.

  1. Open the account you want to use.
  2. Click Enter Transactions.
  3. In the Enter Transaction list, select Corporate Securities Spin-off.
  4. Use this dialog to change the security name and price information when a corporation spins off another corporation or entity. Click a link below for more information.

Enter the name of the security as it is currently identified in your Quicken transaction list.

Enter the name of the new corporation or entity that will receive the spin-off shares.

Enter the ratio, not a number of shares. For example, if you own 150 shares of the original company and the spin-off ratio is .65 new shares for each old share, you would enter .65 (the ratio), rather than 97.5 (the total number of shares you received).

Enter the fair market value (sometimes called tax basis allocation) per share of your original security, on the date of the spin-off. If you do not have the information, it should be available from the parent company or from news articles on the day of the spin-off.

Enter the fair market value (sometimes called tax basis allocation) per share of the new security (the one that was spun off), on the date of the spin-off. If you do not have the information, it should be available from the parent company or from news articles on the day of the spin-off.

If this is a taxable spin-off, select the check box.

The parent company determines whether this is a taxable or nontaxable spin-off.

* If this is a taxable spin-off, Quicken enters one Return of Capital transaction from the parent company and one Buy transaction for the spin-off company, recorded on the day of the spin-off.
* If this is a nontaxable spin-off, Quicken enters a pair of transactions for each open lot of the parent company—a Return of Capital transaction from the parent company and a Buy transaction for the spin-off company, recorded with the same date as the open lot.

For example, “Nontaxable spin-off on (date)” or “Taxable spin-off on (date).”
5. Click Enter/New to enter another transaction, or Enter/Done to finish.

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Seems like it is recommending market value of the stocks during spin off dates.

You can change this slightly to completely be based on market value. That would mean that you will realize the gain or loss of Keppel instead of bringing forward them.

If you want to the realize gain or loss for Keppel, I think the following make best sense to me.

  1. Sell Keppel at the market value on 22 Feb.
  2. Buy Sembcrop at market value of 22 Feb (i.e. price = 0.134) on 23 Feb.
  3. Buy Keppel back at the market value you sold at minus the market value of Sembcrop (i.e. 19.1 x 0.134 assuming you actually got 19.1 because it might be different due to rounding) on 23 Feb.

I think Evan’s proposed approach is pragmatic.

  1. Sell Keppel at the market value on 22 Feb.
  2. Buy Sembcrop at market value of 22 Feb (i.e. price = 0.134) on 23 Feb.
  3. Buy Keppel back at the market value you sold at minus the market value of Sembcrop (i.e. 19.1 x 0.134 assuming you actually got 19.1 because it might be different due to rounding) on 23 Feb.

But instead of “Buy Keppel back at the market value” … can we buy back at “its adjusted-for-distribution price of $4.78 on Wednesday Feb 22nd Close”? Would this make sense ?

How did you get/derived this $4.78?

Hi Evan

It’s based on both ST as well as BT articles on Feb 23rd on Keppel’s share price.

https://www.businesstimes.com.sg/companies-markets/hot-stock-keppel-climbs-much-213-shares-trade-ex-distribution-sembmarine-falls

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Ha… It is actually what I meant :slight_smile:

  1. Sell Keppel at the market value (i.e. close = 7.34) on 22 Feb.
  2. Buy Sembcrop at market value of 22 Feb (i.e. price = 0.134) on 23 Feb.
  3. Buy Keppel back at the market value you sold (i.e. 7.34) at minus the market value of Sembcrop ( 19.1 x 0.134 = 2.5594) (i.e. 19.1 x 0.134 assuming you actually got 19.1 because it might be different due to rounding) on 23 Feb. Hence 7.34 - 2.5594 = 4.7806 :slight_smile:

You dah Man ! :slightly_smiling_face:

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So whats the agreed way to handle this… kinda alot of replies and messy
What if i dont want to sell/buy-back Keppel?
Is there a simpler way of jus adding the SCM shares without adding to the “costs” of the portfolio?

At this point, I recommend one of the two stated here → Keppel O&M merge with SCM - #20 by evankoh

You mean you want to get SCM at price = 0? I think that is not correct in my opinion and also with price = 0, it will cause several computation to be weird. Like Dividend %.

OK boss, I think I will choose a)

a) Treat it as a scrip dividend style

  1. Create a dividend override for Keppel (SGX:BN4) worth 2.5594 per share with ExDate 24 Feb and PayDate 1 Mar
  2. Create a buy transaction of 19.1 shares of SembMarine (SGX:S51) on 1 March at 0.134 for every share of Keppel (SGX:BN4) that you own.

Qn: How di I create a dividend overide? I try to do this now and then tomorrow I create a BUY for SCM

This article should help → How to Override Dividends - StocksCafe Academy
I have also updated the above post.

Hello Evan, sorry for this question.

Are we going to DIY the process ourselves or wait for your adjustment at backend? Because I recalled receiving a backend adjustment triggered from you for KEPCORP recently.

Please see this post → Sembcorp Marine acquisition of Keppel O&M – StocksCafe Blog

The distribution ratio for the Proposed Distribution is 19.085033835 DIS Shares for each KCL Share held by Eligible Shareholders, fractional entitlements to be disregarded.