When a company wants to raise capital, it has one of two options.
The first option is to apply for a loan. The second is to have a rights offer.
The company will determine how much capital it requires and from that will calculate the number of shares to put on offer and the price to offer it at.
Company XYZ Ltd wants to raise R60 million for additional capital to expand its operations. The company decides to issue an additional 15m shares @ R4.50 per share. XYZ Ltd's shares currently trade @ R6.25.
In terms of the offer, the rights would be distributed on a 4 for 10 basis, where for every 10 shares held, XYZ Ltd is offering you the right to buy another 4 shares at a 38% discount of R 4.25
What to do as a rights holder:
Option 1: Shareholders can take up the rights by making the election online. Click on the "perform election" tick in the tools column on your portfolio. By performing this election you agree to buy more shares in XYZ Ltd, 4 for every 10 held at a price of R 4.25. As you are the holder of a 1000 XYZ Ltd shares you will now hold 1 400 shares and the additional shares will cost you R 1 700.00.
Option 2: You can choose to ignore your right rights... However this is NOT recommended, as your existing shares will be diluted because of the new shares issued.
If you ignore them you will lose the value of the right given to you.
Option 3: If you do not want to participate in the right issue, you can sell your rights to other existing shareholder or to new investors.
For any additional information regarding the current rights issues, please contact our call centre on 0860 121 161 for more detailed information