ASX Participants and ASX Clear (ASXCL) Participants are advised that Iluka Resources Limited (ASX Code: ILU) have announced the demerger booklet for the demerger of Deterra Royalties (ASX Code: DRR). The proposed demerger is subject to shareholder approval.
Iluka shareholders will be entitled to receive one share in Deterra Royalties for each existing share held in Iluka share held on Monday, 26 October 2020.
Participants are advised to refer to all announcements by Iluka for information, updates, and full timetables for the proposed transaction.
The key dates from the perspective of ETOs are as follows (indicatively):
Last date Iluka shares trade cum-entitlements under the demerger
Thursday, 22 October 2020
Deterra shares commence trading on a deferred settlement basis
Iluka shares trade ex-entitlements
Friday, 23 October 2020
Record Date for determining entitlement to Deterra shares
Monday, 26 October 2020
Implementation date and issue of Deterra shares
Monday, 2 November 2020
Normal trading of Deterra shares on ASX commences
Tuesday, 3 November 2020
· Participants may wish to consider making their clients, especially retail traders, aware of the issues relating to rights-style ETO adjustment for entitlement issues in relation to trading or exercise of ETOs on the ex-entitlement day.
· As with any rights-style adjustment that relies on market valuation, Participants are strongly advised that the adjustment to ETOs becomes effective on the commencement of ex-entitlement trading of the underlying securities. However, while any ETO trades entered into after the resumption of trading will be on an adjusted basis (“UA” Under Adjustment flag), the full extent of the adjustments will only be confirmed after VWAP and published by ASX after trading close on that day. Traders can estimate indicative adjustments when the market opens or during the course of the day.
Adjustment to ASX ETOs
ASX has consulted with ASXCL on the implications for ILU ETOs in relation to the entitlement offer. ASX will determine the following adjustment under ASX Operating Rule  Adjustments, Appendix 2230 Procedure 10 Alternative Adjustments as follows:
New contract size is calculated as follows:
TC = OC + n*r/S
TC = theoretical new contract size (prior to any rounding) which is used in intermediate calculations
OC = old contract size (currently 100)
n = the number of Deterra Royalties shares attributed to each OC determined by the issue ratio applied to the old contract size, (n=1/1*100=100)
r = the market value of the each of the new shares as determined by ASX, using VWAP of Deterra Royalties on 23 October 2020
S = VWAP of Iluka determined by ASX on the first day of ex-Entitlement trading, 23 October 2020 (matching Deterra trading period)
The new strikes are calculated as follows:
New Strike = Old Strike * OC/TC
The theoretical new contract size (TC) will be calculated to 4 decimal places and will be truncated using the TMC threshold so that if the theoretical new contract size falls between 100 and to up to but not including 102, the new contract size will be truncated to the standard 100. If the theoretical new contract size falls above 102, then the new contract size will be truncated down to the nearest whole number.
OTC series (where any)
Clearing Participants are advised that any OTC series cleared by ASXCL under the ASX Equity OTC Clear service will be adjusted using the same formula as the ETOs as shown in this Derivatives Notice.
OTC series will be adjusted along with ETO adjustments on the night however, to maintain anonymity; the adjusted OTC series details will not be published in the Derivatives Notice but will be available to CPs the following morning via their own clearing systems.
ETO exercise restrictions (where any) in relation to an adjustment may occur during the period of 10 business days prior to and including expiry, will also apply to OTC series. However such exercise restrictions will not apply on expiry day of an OTC.
Participants are advised that as the contract size is changing, arrangements may need to be made for additional lodgement of underlying shares to account for any collateral denoted as specific cover.
Participants should be aware of the content of this Notice as it sets out the treatment of the proposed separation of Deterra Royalties from Iluka with respect to open positions in ASX ILU ETO contracts.
An exercise restriction will be applied to ILU ETOs effective Thursday, 22 October 2020, and lifted on Monday, 26 October 2020.
A listing restriction will be applied to ILU ETOs effective Thursday, 22 October 2020, and lifted on Monday, 26 October 2020.
A further notice will be issued after the close of business following the resumption of trading of the underlying securities on an ex-entitlement basis, Friday, 23 October 2020. The notice will detail the adjusted contract size and adjusted strikes. Participants are reminded that trading on the ex-entitlement day will be on an “under adjustment” basis (UA trading) and effective that day, notwithstanding the adjusted specifications are published by ASX only after close of trading.
Brendan Laird, Senior Manager Settlement Operations
1800 814 051