Can someone please explain to me the concept of nil-paid rights which the shareholder can sell ?? I do not understand how the shareholder's profits equal (ex-rights price- right issue price) when the shareholder sells the nil- paid rights. An example will be appreciated as well. Thank you
Hi - do you have the ActEd notes - if so take a look at the example at the end of page 20, top of page 21 of Chapter 6. You will see that if you have the right to buy a share under the rights issue at 50p and the theoretical post rights price is 75p then you can sell this right for 25p. If you don't have the Notes or it is unclear, please let me know.
Hi Simon, I have read the notes. But the example shows a one-for-one right issue. Could you please show me how the calculations change when there is a say two-for-five rights issue ?? It will help me to understand the concept more clearly. Thank you
Let's use the same example. Share price = 100p Rights issue = 50p Basis 2 for 5 Theoretical price = ( 5 x 100p + 2 x 50p ) / ( 2 + 5 ) = 85.7p Value of nil-paid right = 85.7p - 50p = 35.7p
