Made before making a new issue to the public, and the

existing shareholders have what is referred to as the 'right

of first refusal' on the newly issued shares. This right is

also known as a 'pre-emption right'. Why is this important

for the shareholder? Well, when a shareholder takes up

These pre-emption rights, he can maintain his existing

Percentage holding in the company. However, shareholders

Sometimes waive these rights and sell them to others.

Another thing a shareholder can do is to vote to cancel

Their pre-emption rights.

Mrs Whiteman: What about the price of these shares?

Mr Young: The price at which the new shares are issued is

Generally much lower than the market price for the shares.

You often see discounts of up to 20 or 30 per cent.

Mrs Whiteman: Mm, that doesn't really make sense to me.

Why would a business offer new shares at a price that's

Significantly lower than the current market price of the

shares?

Mr Young: There are quite good reasons for doing this,

Actually. The main reason is to make the offer attractive to

Shareholders. Also, the aim is to encourage the

Shareholders either to take up their rights or sell them. The

Idea behind this is to ensure that the share issue is fully

Subscribed. That means, of course, that the new shares

Have all been sold. The price discount has another function,

too: it serves as a kind of safeguard if the market price of

the company's shares falls before the issue is completed. It

makes sense if you think about it: if the market share price

fell below the rights issue price, then it'd be very unlikely

That the issue would be successful. Naturally, in such a

Case, shareholders could buy the shares more cheaply on

The stock market than by taking up their rights to buy

Through the new issue.

Mrs Whiteman: So, let me see if I understand you correctly.

You said that existing shareholders don't have to take up

their rights to buy new shares, is that right?

Mr Young: That's right. Shareholders who don't want to take up

Their rights are entitled to sell them on the stock market or

By way of the company making the rights issue, either to

Other existing shareholders or new shareholders. In that

Case, the buyer has the right to take up the shares on the

Same basis as the seller.

Mrs Whiteman: I see. Are there any other matters connected

to rights issues that I should know about?

Mr Young:Just one more thing, perhaps - shareholder

Reactions. Shareholders may be unhappy about firms

Continually making rights issues and may have a negative

Reaction. They may not like being forced to do somethingand

Rights issues force them either to take up their rights or

Sell them. As a result, they may sell their shares. And

Selling their shares can drive down the market price.

Mrs Whiteman: Mm, that makes sense now. Thanks.

Mr Young: My pleasure. Any more questions?

Listening 2

Mr Mansfield: Have you got any other questions, Mr Thorpe? Is

there anything else about capitalisation you'd like me to

explain? Anything in the provisions, perhaps?

Mr Thorpe: Yes. Look at this: here it says 'consideration for

shares'. What does that mean, 'consideration'? 'To consider'

means to think about something, as far as I'm concerned.

Mr Mansfield: In this case, 'consideration' simply means

'payment'. It can also mean something that you promise to

Date: 2015-12-11; view: 1030