How will the Rights Issue work?
- Thread starter andrea
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Brendan Burgess
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Well today, the shares are worth 90 cents each, so you have lost very little.
Bank of Ireland says that they will raise around €1billion.
They have 1,004,193,740 shares in issue. I get confused by big numbers, but I think that is 1 billion shares.
So they will probably do something like the following. For each share you currently own, you will have the right to buy 2 shares at €.50 cents each.
To keep the maths simple
Today the company has 1billion shares at €1€ each, so it is worth €1billion.
At the end of March it will have 3 billion shares worth €2billion, so each share will be worth €0.67 each.
If you buy the shares you are entitled to, you will have 3,000 shares worth €2,000 which is the same as what you paid originally plus the additional capital you will subscribe.
If you don't have the money to subscribe for new shares, you will have 1,000 shares worth €670, so you will lose €330.
Any shares not bought by the shareholders, will be bought by the National Pensions Reserve Fund.
There may be a market for the rights. In other words, you might be able to sell your right to subscribe to someone else. Theoretically, the right to buy a share for 50 cents is worth 17cents.
Brendan
Bank of Ireland says that they will raise around €1billion.
They have 1,004,193,740 shares in issue. I get confused by big numbers, but I think that is 1 billion shares.
So they will probably do something like the following. For each share you currently own, you will have the right to buy 2 shares at €.50 cents each.
To keep the maths simple
Today the company has 1billion shares at €1€ each, so it is worth €1billion.
At the end of March it will have 3 billion shares worth €2billion, so each share will be worth €0.67 each.
If you buy the shares you are entitled to, you will have 3,000 shares worth €2,000 which is the same as what you paid originally plus the additional capital you will subscribe.
If you don't have the money to subscribe for new shares, you will have 1,000 shares worth €670, so you will lose €330.
Any shares not bought by the shareholders, will be bought by the National Pensions Reserve Fund.
There may be a market for the rights. In other words, you might be able to sell your right to subscribe to someone else. Theoretically, the right to buy a share for 50 cents is worth 17cents.
Brendan
Andrea, to continue with the analogy, and just in case Brendan frightened you (he's a frightening sort of fellow!) with the reference to a loss of €330, you don't really lose that if you cannot put up the money to take up your rights. As Brendan says, you can sell your rights. If you get the "theoretically" correct price of 17c a share for each of the 2,000 shares you were entitled to take up, then you make up the loss of €330 (allowing for the approximation in the arithmetic)
Thank you so much guys. Im getting there. Couple more questions.
If I look at my shares in my account with my trader, I can see the value I bought them for and I can see the price theyre worth today.
Whether I take up my option on the shares or not, if the maths work out (from Brendans example) then my current share are going to be worth 67c each or 2/3 of their value after the recapitalisation but I'll be given the option or rights to purchase more to make up the difference.
Im now just looking to find out is it the market that determines this devaluation of worth or some other mechanism.
So after the recap, all things being equal, the market will wipe 1/3 off all BOI shares and thats the dilution?
or if the value of the shares are 90c today, could still be 90c the day after recap. but when I go to sell my shares I'll be told those shares are only worth 2/3 of their price?
thanks again.
If I look at my shares in my account with my trader, I can see the value I bought them for and I can see the price theyre worth today.
Whether I take up my option on the shares or not, if the maths work out (from Brendans example) then my current share are going to be worth 67c each or 2/3 of their value after the recapitalisation but I'll be given the option or rights to purchase more to make up the difference.
Im now just looking to find out is it the market that determines this devaluation of worth or some other mechanism.
So after the recap, all things being equal, the market will wipe 1/3 off all BOI shares and thats the dilution?
or if the value of the shares are 90c today, could still be 90c the day after recap. but when I go to sell my shares I'll be told those shares are only worth 2/3 of their price?
thanks again.
Duke of Marmalade
Registered User
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andrea the point is, using the Boss' example, that while you are down 34c on all your existing shares you are up 17c on the twice as many you bought with your rights i.e. your quids in (of course you're still down the 10c you have already lost)
I probably didnt make myself clear. Im trying to find out how the reduction in value of my existing shares manifests itself (irrespective of whether I take the options or not to buy more).
If BOI are valued at 1e a share before the recap. will (using our maths example)
A) The value be down to 67c the day after which is straightforward or
B) Will the market value still remain at 1e but my shares worth are somehow otherwise reduced to 67c?
note: Am accepting other market forces not withstanding.
o Im prob still not making myself clear, sorry)
If BOI are valued at 1e a share before the recap. will (using our maths example)
A) The value be down to 67c the day after which is straightforward or
B) Will the market value still remain at 1e but my shares worth are somehow otherwise reduced to 67c?
note: Am accepting other market forces not withstanding.
o Im prob still not making myself clear, sorry)
Brendan Burgess
Founder
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My calculations are what the theoretical price of the shares should be after the rights issue.
But the price of the share is determined by a very volatile and nervous market, not by a formula.
We don't allow the discussion of individual shares on Askaboutmoney, but in general if the existing shareholders don't take up their options and the government has to buy the shares it would not be good for the share price.
if all the shareholders take up their options, it would be a sign of confidence.
Brendan
But the price of the share is determined by a very volatile and nervous market, not by a formula.
We don't allow the discussion of individual shares on Askaboutmoney, but in general if the existing shareholders don't take up their options and the government has to buy the shares it would not be good for the share price.
if all the shareholders take up their options, it would be a sign of confidence.
Brendan
Thanks Brendan et al, that answers my question on what happens after the recapitilisation.
You've raised another question in my head now, without going into whether people will take up their rights or not due to whatever reason, why would it be a bad thing if the govt picked them up?
I would have thought (obviously naievely from what youve said) that once they are bought by someone then that cant be a bad thing, the government then being just another shareholder, albeit a largish one.
Happy christmas btw
edit: if that questions delves a little too much into discussion of a particular share then ignore, its not too important.
You've raised another question in my head now, without going into whether people will take up their rights or not due to whatever reason, why would it be a bad thing if the govt picked them up?
I would have thought (obviously naievely from what youve said) that once they are bought by someone then that cant be a bad thing, the government then being just another shareholder, albeit a largish one.
Happy christmas btw
edit: if that questions delves a little too much into discussion of a particular share then ignore, its not too important.
Brendan Burgess
Founder
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- 52,117
Selling shares at €50cents which are worth more means that you are giving the government a real bargain. Who pays for this? The existing shareholders who don't take up their rights.
If I take up my rights, I don't care who else takes them as long as they are all taken up. It is in the interests of everyone that the rights issue is fully subscribed.
If I don't take up my rights, I am giving them to someone else who will get a bargain.
Brendan
If I take up my rights, I don't care who else takes them as long as they are all taken up. It is in the interests of everyone that the rights issue is fully subscribed.
If I don't take up my rights, I am giving them to someone else who will get a bargain.
Brendan
my opinion on this one is that at this stage of the game most the remaining shareholders will be more than delighted to take up their rights..most of the present shareholders are bound to be long term holders, as most others have obviously bailed out.
of course the tricky thing with this rights issue business as wem have seen with some of the recent uk bank rights issues, is, if there is a major economic shock in the middle of the rights issue process and the share price goes below the rights issue price, then no shareholders will obviously take up their rights.
the banking boys will be hoping and praying that things will settle down in the new year and their rights issues can proceed without any more nasty credit crunch lehman style scares. They may get a lucky break in this regard. Theres a lot of money after been pumped into the world system. Sometime in early 09 all that 'stimulus' is going to start coming home!
of course the tricky thing with this rights issue business as wem have seen with some of the recent uk bank rights issues, is, if there is a major economic shock in the middle of the rights issue process and the share price goes below the rights issue price, then no shareholders will obviously take up their rights.
the banking boys will be hoping and praying that things will settle down in the new year and their rights issues can proceed without any more nasty credit crunch lehman style scares. They may get a lucky break in this regard. Theres a lot of money after been pumped into the world system. Sometime in early 09 all that 'stimulus' is going to start coming home!