Rights Issues (Bradford & Bingley)

[Jenerous]

Hi,

Thanks to everyone who replied to my previous question. I hold Bradford & Bingley shares. I thought I´d bought them at the bottom but apparently not. Now there´s to be a rights issue (16 for 25) at a price of 82p. I don´t really understand how this works and I´m wondering what to do.

1) Presumably, after the rights issue, the price will settle somewhere between 82p and whatever was the current price before. Let´s say it was 160p. Then, bearing in mind the 16 for 25 ratio, that would put the market price after the issue at around 129p. Is that right?
2) So if I don´t take up the rights issue, I see my existing holding lose, say, 20%. Would that be right?
3) But if I take it up, my portfolio will be heavier than I want in B & B.
4) So can I sell my right to buy the shares to someone else? How?

I´d be really grateful for any advice.

Paul

 

[Splitlink]

Hi,

Thanks to everyone who replied to my previous question. I hold Bradford & Bingley shares. I thought I´d bought them at the bottom but apparently not. Now there´s to be a rights issue (16 for 25) at a price of 82p. I don´t really understand how this works and I´m wondering what to do.

1) Presumably, after the rights issue, the price will settle somewhere between 82p and whatever was the current price before. Let´s say it was 160p. Then, bearing in mind the 16 for 25 ratio, that would put the market price after the issue at around 129p. Is that right?
2) So if I don´t take up the rights issue, I see my existing holding lose, say, 20%. Would that be right?
3) But if I take it up, my portfolio will be heavier than I want in B & B.
4) So can I sell my right to buy the shares to someone else? How?

I´d be really grateful for any advice.

Paul

Rights issues are for one of two reasons.

The company wants the money to expand. Could be good but you need to investigate what they intend to do.

The company is short of money. If they need the money to keep afloat then the price will not go anywhere and they could, conceivably, ask for more money later on. Also, don't forget, Northern Rock has been nationalised, to the detriment of the shareholders, so you need to ask yourself if you might not be better off placing your money in another investment.

Your options are (a) refuse the rights and see your current price diluted by the new shares.
Accept the rights. You will, then, have more shares. Will the company grow, creating a share price increase? That is for you to decide.

Do you suscribe to The Motley Fool? Good place to ask around and it's free.

Split

 

[foredog]

If they were to o ex-rights tomorrow and closed today at 150 then the theoretical price tomorrow would be : 25 x 150 = 3750
+ 16 x 82 = 1312
= 5062 / 41 = 123.46
and the nil paid would trade at 123.46 - 82 = 41.46

If you don't take up the rights your holding % would be reduced but you would still hold 25 shares

The stock will trade XRights for a few weeks, if you don't wish to take up your full holding, you could sell some nil paids at the market price to raise enough to pay for the others, given my figures above you would need to sell roughly 2 BB.n to pay for 1 (although they will probably not be at those prices, but you've got the formulas just change the prices).

If you're still confused, call the broker you hold the stock through, it's their job to know

 

[foredog]

Just out of interest has anyone checked the XR price for RBS tomorrow?

I make it :

(18 x 319 = 5742) + ( 11 x 200 = 2200) /29= 273.86

and nil paid at 73 (minus any finance)

 

[Jenerous]

Many thanks Splitlink and Foredog. And, it seems, Foredog, that you were exactly right about RBS.