Quote:
Originally Posted by goldsun
How is right issue sold on the exchange
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I guess your question is "How is rights issue traded on the exchange?"
Let's use an illustration. Say Nestle is selling at N600 and they decide to do a rights issue for N500. This is a discount of N100. Assuming the price does not change, when the rights issues are listed, that is a N100 gain by the rights issue buyer.
Suppose I hold some shares of Nestle and I am not interested in buying more or I am not convinced that N500 is a fair price, I can decide to sell my rights issue. Assume I have 1,000 shares and the issue is for 1 for 10, which means I am entitled to 100 rights issues. I may decide to sell the 100 rights issues on the floor of the exchange during the period that is opened for the trading (this period usually coincides with the rights issue period).
I tell my stockbroker to sell the 100 rights issues. The price is dependent on the demand. If nobody is interested, buyers may decide to bid for one rights issue for N0.01 (there is no restriction, no 50 kobo rule here). And there may be a huge demand maybe someone who wants to take over the company but does not want to buy directly from the floor in order not to upset the price who may bid for the rights issue at N150.
After buying the rights issue, the buyer would still need to pay the N500 price. So for the person that bought at N0.01, his total cost is N500.01 and for person that bought N150 has a total cost of N650.
That is how rights issues are traded.
knightofdelta
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hispy99
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