Hi everybody Could you pls give me some ideas of possible risk related to issuance of stock option to current shareholders. I think there will be risk in liquidity, deluted EPS, market value…But I think there will be much more. Pls help me suggestions. Thank you very much for your comments.
Depends what you mean - if you give all shareholders the same options on a pro-rata basis (e.g., own 3000 shares get 30 options with strike 10/own 200,000 share get 2000 options strike 10) then you have done nothing except cause people tax problems (in the US).
JoeyDVivre Wrote: ------------------------------------------------------- > Depends what you mean - if you give all > shareholders the same options on a pro-rata basis > (e.g., own 3000 shares get 30 options with strike > 10/own 200,000 share get 2000 options strike 10) > then you have done nothing except cause people tax > problems (in the US). Hi Joey, There aren’t any tax on security income now in this case Vietnam. Sorry I don’t understand much your explain. You mean there is only tax risk?
In the US when you exercise an option it’s a taxable event. So if you exercise MSFT calls at $30 on 1/2/2008 when the stock is selling at $400 you have a $370 capital gain (and your basis in the stock is now 40). So now you wait until 4/15/2009 to deal with it and MSFT has gone bankrupt and stock is worth nothing. In 2008, you owe capital gains tax on $370. In 2009, you have a capital loss which you can work with but somehow you have to pay your 2008 tax bill first (hard to imagine you can get a loan from someone based on a tax loss carryback in the future).
Aha, i understood already the point you provided me. It is really interesting point that i have never though of or read on newspaper before. The reason is that we- Vietnam Government, is on the way of drafting Tax Regulation for income from securities. Thank you for your reply. I just want to chat something about the actual situations I met in Vietnam Security market that may help you understand my point mentioned above about stock option risk. I get some difficulties in expressing my ideas- the language problems but i’ll try to draw you a rather full picture i want to show. Any newbie security market must accept or experience its own weak points. Even I am neither experience on financial job nor deep knowledge of finance but through newspaper i had collected some weak points called risk as following. I would be very happy to hear your comments and solutions. The solution of your own viewpoint or authorities at your countries would all be highly appreciated. I am just a little bit curious 1st weak point There hasn’t any income tax on gain from security transaction yet 2nd weak point Accounting standard hasn’t fully covered all accounting information necessary to investors because it is regulated between GAAP and IFRS. Listed companies only have to report b/s, income statement, cf statement attached with not-detailed footnotes. 3rd weak point One single company can register multi field of operation in multi industry such as both construction and fertilizer producing. I mean one single company itself, not holding company or group company. So, classification of companies by industries get some difficult when company board of director decide their operation base on market. This year company may concentrate heavily on construction but next year fertilizer producing. So, weighted revenue year on year shows nothing about company actual health. 4th weak point There are many stated own companies that its operation result and business activities is back by State. Such stated own companies include essential industries such as energy, coal, steel, electric… Sometimes, with the support of state the company operation distorted. All fundamental information may sometimes carry no meaning. 5th weak point IPO process goes wrong direction. Share of good companies may be undervalued when going IPO. Some major members in board of management and security companies who partly give corporate valuation service can purchase it with very cheap price. Or share of bad companies may be overvalued when going IPO but after a year of operating the bad result will be showed off. The same point happens to option, I doubt there is no fair when value an option price. 6th weak point Information system doesn’t keep secret or inform well. I mean insider information lead to insider trading or control market by some group of people or even institutional investor. 7th weak point Too much policy risk as policy makers are busy all day with correcting law and issueing new guidance regulations. Such “policy risk” such as monetary policy, tariff regulation, policy for controlling price of essential goods … …being continued… Yes, with some mess information above reflect actual business environment. I just wonder some risk if any in case of a listed company issue option for extra capital raise. I want to mean all possible risk raise attached with option right in a certain situation of the market and business environment. Thanks Jeoy for your idea. This is only my extra chat. It may be out topic but i want to hear more about your view and idea on it.