The Investor - Moneyweb's monthly investment magazine Issue 4 | Page 41

BEWARE OF TOO LITTLE, TOO LATE When a company in which you’re invested has a rights issue, do you conduct your own analysis; take your lead from the large institutions; or simply ignore the event, unconcerned that your shareholding gets diluted to another infinitesimal decimal point? " invested in the company, and obviously liking it – as long as there is a discount to the market price. But something which often irks him is that by the time the rights offer closes, the market price has sunk down towards the rights offer price. “I see this quite frequently – even in deeply discounted offers – and this downward drift obviously makes the rights issue less attractive.” As a general rule, if a small cap is doing a survival rights issue, I would not only consider not following it - but reconsider why I am still holding on to this stock at all? Keith Mclachlan, AlphaWealth A rights issue enables a company to raise capital from existing shareholders. They are awarded rights to acquire additional shares in a set ratio to their existing holding and at a set price. They can exercise those rights, let them lapse, onsell them, or go for a combination of these options. Richard Court, analyst at RECM explains that rights issues can broadly be separated into two distinct camps. “The first type relates to capital raising that will grow or expand a healthy business, and these tend to be popular with the market. The second group is rights issues that recapitalise a distressed business th