A short guide to the RBS and HBoS rights issues
By
Associate Editor
David Stevenson May 13, 2008
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What is a rights issue?
A method for a quoted company of raising money, not by increasing debt, but by asking shareholders to invest more in the business. Present owners of the stock are granted the right to subscribe for new shares in proportion to their existing holdings, generally at a discount to the current price as an incentive to plough in extra cash.
How do shareholders hear about rights issues?
All issuing companies formally announce a timetable and shareholders should receive a 'provisional allotment letter' detailing their entitlements. If your shares are held in a nominee account, the account holder should inform you about the issue.
As a shareholder, what do I need to consider?
Whether or not to take up your rights. The price of the existing shares automatically adjusts downwards on “ex-rights” day to allow for the discount. If you then choose to increase your investment in the company, you need to arrange payment for the new shares by the required date. You could even purchase more stock through buying new “nil-paid” shares at the prevailing market premium.
But if you don't want to stump up more cash, you can sell your new “nil paid” shares after they go “ex-rights”. Or you could let the rights “lapse”, in which case the company would sell the lapsed rights and send you the sale proceeds, though that way you do lose control over the process.
Anything else?
It’s stating the obvious, but if the share price drops below the subscription price, there¹s clearly no point in taking up your rights because it would be cheaper to acquire the stock in the open market. This is highly unlikely to happen in these two cases.
What are the relevant dates?
RBS: Provisional allotment letters will be dispatched around 14 May, after which “nil paid” trading will start. Dealings in the new “fully paid” shares should begin in June. Further information is available here. The shareholder helpline is 0870 702 0135.
HBOS: A full prospectus will be sent out in late June outlining the timetable. It is expected that the issue will be completed in late July. Further information is available here. Or you can call the shareholder helpline on 0870 702 0102.
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