understanding financial jargon
When a company wishes to raise new capital, it can first approach existing shareholders with a rights issue, where it offers investors new shares at an attractive price. An existing investor will receive nil-paid rights to purchase new shares in proportion to their current holding. The nil-paid rights give the investor the right to participate in the new share issue but not the obligation to do so.
If the investor chooses to exercise their rights, the investor pays for the new shares and their nil-paid rights become paid up and cease to have any value. If they choose not to exercise their rights, the nil-paid rights can be sold on the open market to other investors who would like to purchase the new shares at the favourable price.
If an investor wishes to purchase some new shares in the rights issue, but without committing new money, it is possible to sell some nil-paid rights on the open market and then use the proceeds to exercise the remaining nil-paid rights to receive new shares. The value of each 'nil-paid right' is the difference between the rights issue price and the expected share price after the new shares have been issued (any new shares added to the existing pool of shares will dilute the share price slightly).
What to do if you need more help
If you need more help with your specific commercial loan, mortgage or insurance requirement please speak to a professional financial adviser.
We hope you found this information useful.
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