| BOVESPA Indices - Special Tag Along Stock Index - ITAG |
Portfolio Composition - September to December/2008
Current Portfolio Composition - 12/04/2008
1st. Preview of the Portfolio - January to April/2009
INTRODUCTION
The ITAG – Special Tag Along Stock Index is designed to measure the return of a theoretical portfolio composed of shares of companies which offer, in case of control sale, better conditions to minority shareholders than those required by law.
Shares Eligible for the Index
Shares issued by companies which offer tag along above the legal requirements shall be elegible for inclusion in the index theoretical portfolio. The applicable law requires that publicly held companies offer to minority common stocks a 80% tag along in relation to the price obtained by the controlling interest, in case of control sale. Therefore, common stocks whose company offers a higher percentage of tag along, and/or preferred stocks whose company offers any percentage of tag along are elegible for ITAG.
METHODOLOGICAL ASPECTS
Criteria for Inclusion in the Portfolio
All stocks whose companies offer special tag along and which have been traded in at least 30% of the trading sessions in the last twelve months will be included in the index portfolio.
The inclusion procedures follow the rules below:
- Stocks of new listed companies:
Stocks will be included after the closing of the first regular trading session. - Stocks of companies already listed on BOVESPA which began to offer special tag along:
Once the trading session presence criteria has been met, the stocks will be included in the trading session following the company’s communication to BOVESPA.
A share may be excluded from the portfolio if its issuing company no longer offers tag along above the legal requirement. The exclusion will be effected in the trading session following the company’s communication to BOVESPA. A share may also be excluded on the occasion of the periodical reevaluations if it no longer meets the minimum liquidity criteria.
If the issuing company initiates a judicial reorganization procedure or files for bankruptcy during the term of the portfolio, its shares will be excluded from the index. In the case of a public offering that results in the removal of a significant amount of shares from the market, the company’s shares shall be excluded from the portfolio. In such circumstances, the index will be adjusted accordingly.
Term of the Portfolio
The theoretical portfolio will be valid for four months, for the periods of January to April, May to August and September to December.
Once every four months, at the end of April, August and December of each year, the theoretical ITAG portfolio will be reevaluated so as to check that none of the companies surpassed the maximum participation limit (see “Weighting Criterion”). On this occasion, shares whose companies offer special tag along and which began to meet the liquidity criteria will be included in the portfolio. On the other hand, shares which did not have a minimum trading session presence of 30% in the twelve preceding months will be excluded from the portfolio, excepting those shares whose companies started to be traded on the Exchange less than a year ago.
Weighting Criterion
The shares comprising the index portfolio will be weighted according to the market value of the outstanding shares (of the type included in the portfolio), that is, those shares belonging to the controlling group will be excluded (“free float”).
A stock’s or company’s participation (if more than one share type belongs to the theoretical portfolio) in ITAG may not surpass 20%, at the time of inclusion or on the occasion of the periodical reevaluations. Should this occur, adjustments will be made in order to match the stock weight to this limit.
The base for ITAG has been set at 1,000 points, for the date of December 30th 2002. In order to be adapted to the initial base, the market value of the portfolio has been adjusted using a reducer (adjustment coefficient), designated by a in the index formula. That is,
Initial index = Value of portfolio / a = 1,000
The index divisor will be altered whenever necessary to accommodate inclusions or exclusions and on the occasion of portfolio reevaluations, or in the case of adjustments arising from benefits/events given by the companies.
The specific weight of each share in the index may be altered during the term of the portfolio, due to the price evolution of each share and/or the distribution of benefits by the issuing company.
When the issuing companies of component shares distribute benefits, the necessary adjustments will be made to guarantee that the index reflects not only the share price variations, but also the impact of the benefit distribution. Because of this methodology, the ITAG is considered to be an index that evaluates the total return on the shares comprising its portfolio.
Index Calculation
BOVESPA will calculate ITAG in real time, considering the prices of the last trades carried out on the cash market (round lot) up until the moment of calculation, with the portfolio component shares.
Suspension of Trading
In the case of suspension of a component share, the index will use the price of the last trade registered on the exchange until the resumption of trading. If trading is not permitted within a period of 50 days as of the date of suspension, or if there are no perspectives that trading will be resumed, or in the case of a portfolio periodical reevaluation, the share will be excluded from the portfolio. In such a case, the necessary adjustments will be made in the index.
Index Adjustments
In order to measure the total return on its theoretical portfolio, the ITAG will be adjusted for all benefits distributed by the issuing companies of the shares included in the portfolio.
1. Adjustments for benefits in shares of the same type (Bonuses/Splits/Reverse splits/Subscriptions)
After the last trading day prior to the benefit distribution, the market value of the component share/type is recalculated. Therefore, the theoretical quantity adjusted to the benefit distributed and the share “ex-theoretical” price are used. The value thus obtained will be the basis for comparing the evolution of this share on the following trading session.
Example:
Let’s consider company XPT which distributed a share bonus of 50% on the share type, D-0 being the last trading day before the benefit distribution.
Date |
Price (R$) |
Quantity of XPT stocks in the index |
Market capitalization of XPT stocks (R$) |
Variation (%) |
Index (*) |
| D-0 (1) | 300,00 | 1.000.000 | 300.000.000,00 | - | 100 |
| D-0A (2) | 200,00 | 1.500.000 | 300.000.000,00 | - | 100 |
| D+1 (3) | 220,00 | 1.500.000 | 330.000.000,00 | + 10 | 110 |
| D+2 | 230,00 | 1.500.000 | 345.000.000,00 | + 4,5 | 115 |
Notes:
(1) Closing position of the component share/type on the last trading day before the benefit distribution, that is, the quantity of shares before distribution of the benefit multiplied by the last asset price registered for that day.
(2) Adjusted closing position of the component share/type on the last trading day before the benefit distribution, that is, considering the new quantity of shares and the “ex-theoretical” price. This data will be used as a basis for comparison for the following day.
(3) Closing position of the component share/type on the first “ex-rights” trading day, taking into consideration the new quantity of shares and the “ex-market” closing price.
(*) If necessary, the index reducer will be adjusted to guarantee that the number of index points suffers no alteration due to the adjustment to the benefit.
In the case of reverse splits, the theoretical quantity will be reduced on the proportion determined by the company and a special “ex-theoretical” price will be calculated in order to maintain the economic value of the component share/type unaltered.
Apart from these situations, whenever the issuing company communicates the occurrence of facts that result in changes in its total share quantity (conversion of debentures into shares, cancellation of shares, conversion of one type of share into another, etc.), the relevant adjustments will be carried out and, if necessary, the index reducer will be altered.
2. Benefits in cash or other events
After the closing of the trading session of the last trading day prior to benefit distribution, the market value of the component share/type is recalculated, maintaining the theoretical quantity of this share in the portfolio unaltered and using its “ex-theoretical” price. This value will serve as a basis for comparison of the share prices evolution on the following day. If necessary, the index reducer will be altered.
Example:
Let’s consider company ABC which distributed a dividend of R$ 30 per share, D-0 being the last trading day before the benefit distribution”.
| Date | Price (R$) | Quantity of YKW stocks in the index | Market capitalization of YKW stocks (R$) | Variation (%) | Index (*) |
| D-0 (1) | 250,00 | 1.000.000 | 250.000.000,00 | - | 100,0 |
| D-0A (2) | 220,00 | 1.000.000 | 220.000.000,00 | - | 100,0 |
| D+1 (3) | 230,00 | 1.000.000 | 230.000.000,00 | + 4,5 | 104,5 |
| D+2 | 235,00 | 1.000.000 | 235.000.000,00 | + 2,2 | 106,8 |
Notes:
(1) Closing position of the stock on the last trading day prior to the benefit distribution, that is, the position calculated with the last quotation of that day.
(2) Adjusted closing position of the stock on the last trading day prior to the benefit distribution, that is, considering the same quantity of stocks and the ex-theoretical quotation. Such data will be used as a basis for comparison on the following day.
(3) Closing position of the stock on the first ex-rights trading day, considering the "ex-market" closing price.
(*) The reducer will be adjusted so that the number of index points is not changed as a result from the benefit adjustment.
Special Procedures
1. Adjustments in case of Company Spin-off
-
Announcement/effect of the spin-off
The announcement of the issuing company’s decision to make a spin-off does not alter its situation in the index theoretical portfolio.
Once the spin-off has been made and while awaiting the resulting companies to be operational and registered, these companies will be considered as a trading unit and will remain in the index portfolio.
For the purposes of trading on BOVESPA, the effect of the spin-off means the act by which the shares of the companies resultant from the spin-off start to be traded on the trading session. -
Beginning of trading on the stock exchange of the companies resulting from the spin-off
The index theoretical portfolio will include the companies resulting from the spin-off if they meet the criteria of special tag along.
2. Adjustments in the Case of Public Offerings
Whenever a company launches a public offering that results in the acquisition of a significant proportion of the outstanding shares, BOVESPA may adopt one of the following two procedures:
- when the acquisition is lower than 2/3 (two thirds) of the outstanding shares, removal from the index of the percentage of outstanding shares bought by the company; or
- removal of the share from the index when the acquisition is higher than 2/3 (two thirds) of the outstanding shares.
3. Adjustments in the Case of Mergers
- Company with shares included in the index merges with a company whose shares also belong to the index
- Company with shares included in the index merges with a company whose shares do not belong to the index
- Company with shares included in the index is incorporated by a company whose shares are not included in the index
The shares of the incorporating company remain in the index.
The shares of the incorporating company remain in the index.
- exclude the share from the index;
- substitute the share of the incorporated company for shares of the incorporating company.
CALCULATION FORMULA AND PROCEDURES
1. Formula for Calculating ITAG
ITAG may be calculated using the following formulas:
- without using the reducer:
- using the reducer:
where:
ITAG (t) = index value on day t
ITAG (t - 1) = index value on day t-1
n = number of shares included in the index theoretical portfolio
Qi (t-1)= theoretical quantity of share i available for trading on day t-1. In the event of distribution of shares of the same type by the company, it refers to the theoretical quantity of share i available for trading on day t-1, recalculated because of such benefit.
Pi (t) = price of share i at closing of day t
Pi (t-1) = closing price for share i on day t-1, or its ex-theoretical price, in the case of benefit distribution on this day.
where:
ITAG t = index value at moment t
n = total number of companies (in the share/type) included in the index theoretical portfolio
Pi (t) = last price of share i at moment t
Qi (t) = quantity of share i in the theoretical portfolio at moment t
µ = reducer used to adjust the index value to the current base
2. Adjustment Procedure for Benefits
The theoretical quantities of the companies in the share/type (i.e. their number of outstanding shares) will only be altered in the event of benefit distribution in shares of the same type by the issuing companies (bonuses, splits, subscription, etc.).
The adjustment of the theoretical quantities in the exact proportion to the distributed benefit is carried out after the closing of BOVESPA’s trading session, on the last day prior to the ex-date of the corporate action.
The following formula is used:
Qn = Qa * (1 + B + S)
where:
Qn = adjusted quantity of shares
Qa = previous quantity of shares
B = percentage of bonus and/or split, in index number
S = percentage of subscription, in index number
In the event that an approved benefit is partially homologated, or is not homologated, the quantity of shares in the portfolio will be proportionally reduced to reflect the real quantity of outstanding shares.
This adjustment will be carried out on the trading session after the date of receipt, by BOVESPA, of the communication expedited by the issuing company providing information of these facts. The index reducer will be adapted so that the index value suffers no alteration.
3. General Formula for Calculation of the “Ex-theoretical” Price
where:
Pex = ex-theoretical price
Pc = last price before the benefit distribution
S = percentage of subscription, in index number
Z = issuing value of the share to be subscribed, in Brazilian currency
D = dividends received per share, in Brazilian currency
J = interest on capital, in Brazilian currency
Vet = theoretical economic value per share, resulting from benefits distributed in another share type/asset
B = percentage of bonus (or split), in index number
Note: The Vet is calculated considering the financial amount which would be obtained from the sale of shares of another type and/or other assets (debentures, shares of another company, etc.) received. For example, suppose that company A is distributing to its shareholders, free of charge, one share of company B for every two shares held of company A, and that the shares of company B are evaluated at $ 5.00/share. In this case, the Vet will be equal to $2.50.
