(c) Price of rights issue
The price of a rights issue will generally be below current market price to provide an incentive to the
shareholders to take up the rights shares (or alternatively sell the rights). In particular, during the
period of time between announcement and subscription dates, the market price of the existing
shares may fall below current market price, in which case shareholders interested in increasing their
holding would buy on the market rather than taking up the issue.
It is important to the issuing company that the rights issue is a success, not only for the finance it
raises, but also to avoid a detrimental effect on market reputation and image that a failed issue can
bring.
It is also important that the shareholders should take up or sell the rights in order to at least maintain
their wealth – ignoring the rights offer altogether can leave them worse off. |
