Rights Issue

Question 1

Reasons for a company to issue more shares or a rights issue (3)

Answer 1

• finance a specific acquisition/ expansion
• reduce debt
• strengthen balance sheet

Question 2

Methods to raise capital via stock market other than a rights issue (4)

Answer 2

• placement
• private offer to institutions or sophisticated investors
• open offer to existing shareholders
• similar to rights issue, existing shareholders are offered new shares on a pro retail basis at a discount
• but entitlement can not be traded

Question 3

Options if deciding not to take up a rights issue (2)

Answer 3

• sell the rights on the open market

- do nothing/ let lapse

Question 4

Reasons for a company to have a bonus Issue (2)

Answer 4

• reduces share price to a more marketable level
• reduces company reserves
• alternative to paying a dividend

Question 5

Factors to co side before taking up a rights issue (4)

Answer 5

• reason for rights issue
• is the discount on the current share price attractive
• how does it appear the market will react to the issue
• would they prefer a premium for their rights issue/ ie sell right in the market
• do they want to own more shares in the same company
• what are the personal finances of the investor like?
• future prospects for the company