Rights Issue
Rights Issues occur when a company is looking to raise capital without borrowing more money thereby avoiding the costs of borrowing.
Rights issue
Rights Issues occur when a company is looking to raise capital without borrowing more money thereby avoiding the costs of borrowing. Investors are often drawn to the option to buy more shares in a company they hold because of the discounted price at which they can buy more shares.
Before jumping in feet first, investors should consider the reason for raising this capital especially if the offer is heavily discounted. There may be a variety of perfectly good reasons. Expanding the company by acquisitions or bringing new products to market could require new capital. Alternatively a firm may require new capital due to bad management in the past. Investors should note the former is not necessarily a reason to buy and the latter could lead to a recovery of an under performing company.
How does it work?
Investors who hold their equities with My Money People will receive assistance to firstly calculate the Theoretical ex-rights price to estimate the dilution that will occur as a result of the rights issue.
Further guidance is given to decide whether to participate fully from the issue or not at all. In cases where no additional funds are available, we will assist with calculating the maximum number of rights you can take up by selling some of your rights to fund some of the new share issue without investing new money. This is known as the maximum subscription at nil cost.
Contact our Exeter based team to find out more and get help with your equity portfolio.
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