How rights issues work - stocks and shares
Discussion
im looking for some guidance on the implications of not taking up my rights. The confusion is coming from the rights price being set so far below the original share price.
Right issue price @ 0.362 Euros
Share price before announcement @ 5.25 Euros
If i dont take up my rights (22 new shares for every 1 original owned) am i right to conclude that my holding (4040 shares @ 5.25€) will be diluted/worth -93% which is the percentage change between the before and after share price?
Right issue price @ 0.362 Euros
Share price before announcement @ 5.25 Euros
If i dont take up my rights (22 new shares for every 1 original owned) am i right to conclude that my holding (4040 shares @ 5.25€) will be diluted/worth -93% which is the percentage change between the before and after share price?
Yes
There must be serious questions to be raised about that company which go far beyond your dilution point! Why are the "rights" being sold so cheaply?
Looks to me like either the company must already be in the tank (which it appears not to be if the shares still have value before the rights issue) or the rights are so cheap you'd be a muppet not to take them up.
After all, if you take up the rights issue and then sell a few of the shares it appears you can recover the cost of taking up the rights and then sit with more shares than you had before.
Something doesn't fit.
There must be serious questions to be raised about that company which go far beyond your dilution point! Why are the "rights" being sold so cheaply?
Looks to me like either the company must already be in the tank (which it appears not to be if the shares still have value before the rights issue) or the rights are so cheap you'd be a muppet not to take them up.
After all, if you take up the rights issue and then sell a few of the shares it appears you can recover the cost of taking up the rights and then sit with more shares than you had before.
Something doesn't fit.
Thanks Ozzie,
The company was valued at approx 2.3billion Euros before rights issue. It did though have high debt. They are attempting to raise €3.5billion through this capital raising by offering 9.6billion new shares to market.
The current share price is now at approx 57% above rights issue price but will im sure keep falling. I have no choice then but to purchase my rights (£25k) and attempt to claw back my rights investment by selling them on the open market at hopefully 0.570€.
The company was valued at approx 2.3billion Euros before rights issue. It did though have high debt. They are attempting to raise €3.5billion through this capital raising by offering 9.6billion new shares to market.
The current share price is now at approx 57% above rights issue price but will im sure keep falling. I have no choice then but to purchase my rights (£25k) and attempt to claw back my rights investment by selling them on the open market at hopefully 0.570€.
noble3r said:
Thanks Ozzie,
The company was valued at approx 2.3billion Euros before rights issue. It did though have high debt. They are attempting to raise €3.5billion through this capital raising by offering 9.6billion new shares to market.
The current share price is now at approx 57% above rights issue price but will im sure keep falling. I have no choice then but to purchase my rights (£25k) and attempt to claw back my rights investment by selling them on the open market at hopefully 0.570€.
I think you have this totally wrong.The company was valued at approx 2.3billion Euros before rights issue. It did though have high debt. They are attempting to raise €3.5billion through this capital raising by offering 9.6billion new shares to market.
The current share price is now at approx 57% above rights issue price but will im sure keep falling. I have no choice then but to purchase my rights (£25k) and attempt to claw back my rights investment by selling them on the open market at hopefully 0.570€.
The reason the stock has fallen to 57c is because you now own TWO things.
The ords (4040 of them) AND some Saipem rights which began trading on Jan 25.
If you don't want to stump up £25k to exercise your rights, just sell your rights on the open market.
I don't have time to find the ticker for Saipem rights but you should absolutely talk to your broker.
I 100% guarantee you that you have NOT just lost a huge amount of money here.
The 4040 may have been worth >E21k on Friday and are worth just E2.3k now BUT YOU HAVE GOT SOMETHING ELSE IN RETURN.
Seriously - call your broker.
Tonker - look at the 5 day chart.
The stock (SPM IM) closed at E4.70 on friday and opened at 0.62 on Tuesday.
The rights are separately traded.
Saipem didn't just lose nearly 90% of its market cap over the weekend.
I have to explain them every time to my team but rights issues don't in-and-of-themselves create or destroy value.
The "discount" is irrelevant.
You start with some shares which give you X% ownership of the company.
Then you put in some cash to the company.
So now you own X% of the same company PLUS some cash.
Obviously for heavily indebted companies there is a HUGE value creation opportunity where something that might be going bankrupt is thrown a lifeline through the extra cash.
BUT it is far more nuanced than that since you also have significant technical issues around a rights issue as people tail swallow and put pressure on the ords. And of course the risk that the issue fails and not enough people take up the rights so the cash raised isn't sufficient to bail them out.
Whatever, the OP did NOT just lose E19k over the weekend!
The stock (SPM IM) closed at E4.70 on friday and opened at 0.62 on Tuesday.
The rights are separately traded.
Saipem didn't just lose nearly 90% of its market cap over the weekend.
I have to explain them every time to my team but rights issues don't in-and-of-themselves create or destroy value.
The "discount" is irrelevant.
You start with some shares which give you X% ownership of the company.
Then you put in some cash to the company.
So now you own X% of the same company PLUS some cash.
Obviously for heavily indebted companies there is a HUGE value creation opportunity where something that might be going bankrupt is thrown a lifeline through the extra cash.
BUT it is far more nuanced than that since you also have significant technical issues around a rights issue as people tail swallow and put pressure on the ords. And of course the risk that the issue fails and not enough people take up the rights so the cash raised isn't sufficient to bail them out.
Whatever, the OP did NOT just lose E19k over the weekend!
http://www.saipem.com/sites/SAIPEM_en_IT/con-side-...
"The option rights valid for the subscription of newly issued shares of Saipem will be exercisable, subject to forfeiture, from 25 January 2016, to 11 February 2016, included (the "Offering Period”) and will also be tradeable on the Milan Stock Exchange from 25 January, 2016 to 5 February 2016, inclusive."
"The option rights valid for the subscription of newly issued shares of Saipem will be exercisable, subject to forfeiture, from 25 January 2016, to 11 February 2016, included (the "Offering Period”) and will also be tradeable on the Milan Stock Exchange from 25 January, 2016 to 5 February 2016, inclusive."
anonymous said:
[redacted]
To be clear the current value of SPM is effectively trading ex-rights.So the market cap is E0.55 x new share count (10.1bn shares).
Total = E5.56bn.
Given the rights are raising E3.5bn the company is worth E2.06bn
The OLD market cap was E5.26 x old share count (440m shares).
Total = E2.3bn.
So since the announcement the value of the company has dropped 11%.
That's how much of the E21k the OP has lost.
The rights will be worth E0.19 because at the moment you have TWO ways to buy an ordinary share in NEW Saipem:
1. Spend E0.55 and buy an ordinary share.
2. Spend E0.19 on the right and then E0.36 exercising it to give you an ordinary share (total spend E0.55).
Any delta should be arbed out.
walm said:
anonymous said:
[redacted]
To be clear the current value of SPM is effectively trading ex-rights.So the market cap is E0.55 x new share count (10.1bn shares).
Total = E5.56bn.
Given the rights are raising E3.5bn the company is worth E2.06bn
The OLD market cap was E5.26 x old share count (440m shares).
Total = E2.3bn.
So since the announcement the value of the company has dropped 11%.
That's how much of the E21k the OP has lost.
The rights will be worth E0.19 because at the moment you have TWO ways to buy an ordinary share in NEW Saipem:
1. Spend E0.55 and buy an ordinary share.
2. Spend E0.19 on the right and then E0.36 exercising it to give you an ordinary share (total spend E0.55).
Any delta should be arbed out.
walm said:
Tonker - look at the 5 day chart.
The stock (SPM IM) closed at E4.70 on friday and opened at 0.62 on Tuesday.
The rights are separately traded.
Saipem didn't just lose nearly 90% of its market cap over the weekend.
I have to explain them every time to my team but rights issues don't in-and-of-themselves create or destroy value.
The "discount" is irrelevant.
You start with some shares which give you X% ownership of the company.
Then you put in some cash to the company.
So now you own X% of the same company PLUS some cash.
Obviously for heavily indebted companies there is a HUGE value creation opportunity where something that might be going bankrupt is thrown a lifeline through the extra cash.
BUT it is far more nuanced than that since you also have significant technical issues around a rights issue as people tail swallow and put pressure on the ords. And of course the risk that the issue fails and not enough people take up the rights so the cash raised isn't sufficient to bail them out.
Whatever, the OP did NOT just lose E19k over the weekend!
Thanks for your time on this Walm. The stock (SPM IM) closed at E4.70 on friday and opened at 0.62 on Tuesday.
The rights are separately traded.
Saipem didn't just lose nearly 90% of its market cap over the weekend.
I have to explain them every time to my team but rights issues don't in-and-of-themselves create or destroy value.
The "discount" is irrelevant.
You start with some shares which give you X% ownership of the company.
Then you put in some cash to the company.
So now you own X% of the same company PLUS some cash.
Obviously for heavily indebted companies there is a HUGE value creation opportunity where something that might be going bankrupt is thrown a lifeline through the extra cash.
BUT it is far more nuanced than that since you also have significant technical issues around a rights issue as people tail swallow and put pressure on the ords. And of course the risk that the issue fails and not enough people take up the rights so the cash raised isn't sufficient to bail them out.
Whatever, the OP did NOT just lose E19k over the weekend!
My current broker is an execution platform only and will not offer any advise.
I don't follow how i can sell my rights on the open market. According to my Share Dealing Account I don't own any rights yet, the shares won't be allocated to me until i purchase them...surely
noble3r said:
Thanks for your time on this Walm.
My current broker is an execution platform only and will not offer any advise.
I don't follow how i can sell my rights on the open market. According to my Share Dealing Account I don't own any rights yet, the shares won't be allocated to me until i purchase them...surely
OK - firstly don't panic too much. My current broker is an execution platform only and will not offer any advise.
I don't follow how i can sell my rights on the open market. According to my Share Dealing Account I don't own any rights yet, the shares won't be allocated to me until i purchase them...surely
The deal is fully underwritten by the banks.
In other words, Saipem will raise the full E3.5bn no matter what.
What this means is that your rights won't expire worthless - they will be taken on by someone else; either the banks themselves or whoever they can sell them to. SOMEONE will be paying E0.362 for each new share (in order to generate the full E3.5bn) it is just a question of who.
Now you might not get a great price (particularly if SPM IM continues to drop) but it is very unlikely to be ZERO.
From my link above:
"Pursuant to art. 2441, paragraph 3 of the Italian Civil Code, any option rights remaining unexercised by the end of the option period will be sold on the Italian stock exchange within the next month after the end of the Offering Period, for at least five trading days unless they are fully sold before that time."
It is possible that you don't have the rights appearing in your trading account because of some bizarre T+3 settlement I suppose (where any corporate action causes a share or option to move around or be created, there is a delay in the share settling in your account).
However, they really should be there or somewhere.
Is there honestly no one you can call?
Hello all - I came across this thread trying to understand the now closed Saipem rights issue.
I recently noticed on my share statement a terrifying loss and trying to understand why. Reading this thread and other sites, with rights issues I have / had 3 choices
1. Accept the rights and cough up more investment money,
2. Sell some or all the rights or
3. do nothing.
My understanding is that by doing nothing, Saipem will assume that I wanted to sell my rights and at the end of the rights offer period they will do so.
Now in my case let's assume before the rights issue I held 2700 Saipem shares and opted for option 3.
Let's assume I bought the shares for E10 per share and after the rights issue today's price is E0.4 per share
My share statement is showing I own 2700 shares but share price is now E0.4 with a loss of E27,000 - E1,080 = E25,920 96% LOSS
Have I really lost so much?
I recently noticed on my share statement a terrifying loss and trying to understand why. Reading this thread and other sites, with rights issues I have / had 3 choices
1. Accept the rights and cough up more investment money,
2. Sell some or all the rights or
3. do nothing.
My understanding is that by doing nothing, Saipem will assume that I wanted to sell my rights and at the end of the rights offer period they will do so.
Now in my case let's assume before the rights issue I held 2700 Saipem shares and opted for option 3.
Let's assume I bought the shares for E10 per share and after the rights issue today's price is E0.4 per share
My share statement is showing I own 2700 shares but share price is now E0.4 with a loss of E27,000 - E1,080 = E25,920 96% LOSS
Have I really lost so much?
No, because your calcs do not account for the value of the rights.
This value will be added when you sell or exercise your rights. Have you identified what price the rights are currently trading at?
Edit: appears the SP is trading below the rights so clearly a poor proposition.
This value will be added when you sell or exercise your rights. Have you identified what price the rights are currently trading at?
Edit: appears the SP is trading below the rights so clearly a poor proposition.
Edited by DoubleSix on Tuesday 17th May 07:08
I don't have time to check Bloomberg but I suspect the rights are no longer trading.
What should have happened is:
1. You were GIVEN 2,700 shares x22 = 59,400 rights.
2. Your broker having received no instruction from you, should have sold them at the end of the trading period, so that they didn't expire worthless.
3. You NOW have just 2,700 shares of NEW Saipem.
4. The amount your broker received for selling the rights should have been credited to your account.
The point is the following.
Saipem needed all €3.5bn from the rights issue.
The banks fully underwrote the deal, this means that even when an owner of the rights decided NOT to subscribe to the issue (like you did) Saipem STILL need that money so the banks pay for it and take new shares in exchange.
Here is an article explaining that exactly that happened: https://www.theguardian.com/business/2016/feb/12/s...
So the money from the rights should be knocking around somewhere.
Call your broker.
What should have happened is:
1. You were GIVEN 2,700 shares x22 = 59,400 rights.
2. Your broker having received no instruction from you, should have sold them at the end of the trading period, so that they didn't expire worthless.
3. You NOW have just 2,700 shares of NEW Saipem.
4. The amount your broker received for selling the rights should have been credited to your account.
The point is the following.
Saipem needed all €3.5bn from the rights issue.
The banks fully underwrote the deal, this means that even when an owner of the rights decided NOT to subscribe to the issue (like you did) Saipem STILL need that money so the banks pay for it and take new shares in exchange.
Here is an article explaining that exactly that happened: https://www.theguardian.com/business/2016/feb/12/s...
So the money from the rights should be knocking around somewhere.
Call your broker.
Thanks for the explanation. Unfortunately after calling my broker, they tell me they didn't sell the rights
The explanation they gave wasn't clear for me and I've asked for a letter so I can sit down and put some sense to it, but they mentioned something about Saipem were going to issue lapsed proceeds and there was a risk the lapsed proceeds would be higher than the selling price of the rights so didn't sell . At the end of the offer, the lapsed proceeds were nil. (I think that's what they said)
The explanation they gave wasn't clear for me and I've asked for a letter so I can sit down and put some sense to it, but they mentioned something about Saipem were going to issue lapsed proceeds and there was a risk the lapsed proceeds would be higher than the selling price of the rights so didn't sell . At the end of the offer, the lapsed proceeds were nil. (I think that's what they said)
steve..steve said:
Thanks for the explanation. Unfortunately after calling my broker, they tell me they didn't sell the rights
The explanation they gave wasn't clear for me and I've asked for a letter so I can sit down and put some sense to it, but they mentioned something about Saipem were going to issue lapsed proceeds and there was a risk the lapsed proceeds would be higher than the selling price of the rights so didn't sell . At the end of the offer, the lapsed proceeds were nil. (I think that's what they said)
OK - I have double checked the timing on the rights issue.The explanation they gave wasn't clear for me and I've asked for a letter so I can sit down and put some sense to it, but they mentioned something about Saipem were going to issue lapsed proceeds and there was a risk the lapsed proceeds would be higher than the selling price of the rights so didn't sell . At the end of the offer, the lapsed proceeds were nil. (I think that's what they said)
And I am afraid it does not look like good news, your broker is right, from what I can tell.
To cut a long story short - if you look up to my post above explaining how you price the right when the stock (SPM IM) was at €0.55...
The right, lets you buy a (new) share for €0.36.
So when the ordinary shares are trading at €0.55 then the right is worth €0.19 because you can pay that 19c and then buy a share for 36c and the total amount you have spent is the same as just buying a share the normal way = 55c.
Rights are inherently more volatile than shares because they are essentially leveraged (you get exposure to underlying 55 by just spending 19).
So for example if the 55 drops to 45 the right will drop MORE THAN 50%!! (It's now worth just 9c (45-36=9) not 19c.)
The Saipem share was EXTREMELY volatile around the rights issue period.
From the 55c price it went up a little and then tanked rapidly down to 30c.
The rights expired when the stock was at 31c, I think.
Which means that yes, the rights were worthless at the time (because you wouldn't pay anything that let's you buy something for 36c that you can buy elsewhere for 31c).
What I said about the banks underwriting it was true but the amount they have to underwrite is that bit ABOVE 36c. I didn't realise that at the time of expiry (just a few days after the 55c price we talked about above) the ordinary stock had dropped so much.
I am really very sorry, but again, as far as I can tell the broker is correct.
Thanks Walm it's clear now, depressing but clear.
Ozzie, I just came across this thread while trying to understand how I lost so much. Wish I'd seen it earlier.
So in hind sight what should i have done (apart from not buying the shares in the first place). Seems to me all 3 options would give a loss
Ozzie, I just came across this thread while trying to understand how I lost so much. Wish I'd seen it earlier.
So in hind sight what should i have done (apart from not buying the shares in the first place). Seems to me all 3 options would give a loss
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