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