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?
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€.
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
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