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Tuesday, August 14, 2007

How to buy shares offered under a Rights Issue

I will use the example of Olympia Holdings Co. Ltd (OCHL). I do not have their timetable but I will clean/correct the dates/details when I can get my hands on one.

OCHL announced their intention to do a "Rights Issue" which means existing shareholders have the "Right" to buy more "newly issued" shares in the firm. The proceeds go to the firm for expansion, debt payoff, etc.

The increase in capital was passed at the AGM held in June 2007, thereafter an announcement was made to the number of shares to be offered in the Rights Issue on 26 June 2007. This was 3:1 meaning you could but 3 "new" shares for each 1 share owned.

OCHL made an application to the CMA. After CMA's approval, OCHL announced a price for the "new" shares i.e. 14/- on 10 August 2007. The shares will trade Cum Rights through 17 August 2007 after which they go Ex-Rights.

For some reason unknown to me, the shares are not reflected as Cum Rights on the price list dated 13 or 14 August 2007.

Anyone who buys the OCHL shares on or before 17 August 2007 is entitled to the Rights for "free". What this means is that each share has the "Right" to buy 3 more shares at 14/- each. The shareholders as of 17 August 2007 will receive a Memorandum of Information (MoI) that includes forms to apply/assign/transfer/sell these Rights.

The Rights will then trade separately from the underlying shares. (I do not have the timetable but I think the last day to apply for the shares is 3 September 2007). Anyone can buy the Rights at a "premium" then exercise them at 14/- in exchange for "new" shares. To buy Rights, an investor needs to contact their broker & ask them to buy Rights from the market.



glo said...

Many thanks.

financial spread betting said...

I've never been comfortable buying rights issues. I prefer a bit of a history.