1. avatar says

    Dear John, on your question about what % is ideal so that the cash does not get effected, I have seen the explanation and it make all sense, however, I was wondering whether is it not the same if I divide $1.5/$7.5 that is the value of right divided by the Ex.Right M.V. or was this example a mere coincidence?

    Thanking in advance.

  2. avatar says

    thanks John for these wonderful lectures.
    Now my issue is this,example 2 in the topic of sources of finance-equity, why do we put a bracket on the “take up rights” when trying to find out the new wealth???

  3. avatar says

    Hi Mike

    Is this not annoying for shareholders they have to buy 20% then sell the rights of 80% and after doing all this messing around they only break even? Do right issues then not get a bad press? I own shares and have had a few right issue letters but so far have ignored them thus seems Im losing money but if I pay attention to them and take my time and act on these letters then at best I break even. Bit frustrating this am I missing something asI am not a big fan of spending time and effort to break even?

    • Profile photo of John Moffat says

      First, Mike does not teach F9! :-)

      Rights issues are very popular with shareholders. As I say in the lecture, the actual ex-rights price will usually be higher than the theoretical price (because shareholders usually expect the money raised to be invested well by the company), and therefore it will be better than breakeven – whatever they decide to do.

      Ignoring a rights letter will usually mean that the company will sell the rights for you and so you will receive cash, but you will end up owning a lower % of the companies shares. The beauty of rights issues is that you have the choice – pay in cash and own more shares, or take out cash and own less shares (in % terms). What shareholders decide depends much on what cash they have available and how optimistic they are about the companies growth in the future.

      PS buying 20% and selling 80% does not involve messing around – shareholders receive a form stating how many new shares they are entitled to. They simply fill in the relevant boxes for how many they want to buy and how many rights they want to sell.

      Taking up rights involves much less hassle than buying more shares on the stock exchange.

  4. avatar says

    Dear John,

    What is the difference between Bonus issues (Scrip issues) and Scrip Dividends. How does a company decides whether to go for Bonus or Scrip dividends?

    As I understand from the notes, in both free shares are issued and no cash inflows results to the company.


    • Profile photo of John Moffat says

      Bonus issues are where shareholders are given free shares.

      Scrip dividends are bonus issues except that they are given the free shares instead of a cash dividend (and are usually given the choice as to whether to take cash or shares).

      Scrip dividends are popular because they are effectively a way of raising finance in that if shareholders take shares instead of cash dividends then the company is saving cash that they would otherwise have had to distribute.

      Bonus issues on their own do not raise any finance and are simply a way of reducing the market value per share on the stock exchange.

  5. avatar says

    Dear John.
    I have just divided 1.5 to 7.5 and got right answer : 20 %. I also checked this way using different figures and answers were same again. I wonder whether I’m on right way or not. Thanks in advance :)

  6. avatar says

    Dear John,
    The rights issue wont make the the company’s share price to dilute( lower), since after offering rights the value of share falls? It will give loss to the shareholder, aside from theoretical assumptions.

    • Profile photo of John Moffat says

      The share price will be lower per share, but everyone will have more shares bought at a low price.
      In theory shareholders will make no gain no loss.

      In practice (as I say in the lecture) the share price will usually be higher than the theoretical share price, and shareholders will make a gain. The reason is that usually they will be expecting that the money raised will be invested well, which will increase the value.

      (If shareholders thought that they would make a loss, then nobody would take up the rights!)

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