Lloyds Banking Group shareholders need to be quick if they want to take up their rights as part of the bank's £13.5bn cash call. It's D-Day on Friday and the new shares will begin trading at the start of next week.Hopes of a good take-up from the 2.8 million private investors are high in some quarters, encouraged by this week's heavily oversubscribed $986m US bond exchange. Holders wanted to swap $2.7bn of existing securities for new enhanced capital notes (ECN), a new type of hybrid debt. The part-nationalised lender said last month that investors had wanted to swap £12.51bn of existing debt for contingent capital when only £9bn was up for grabs.Latest time and date for acceptance, payment in full and registration or renunciation of Provisional Allotment Letters is 11am Friday.Analysts at UBS think the shares could bounce strongly once the rump placement completes on 14 December, "or possibly sooner".They say the underlying margin and credit momentum is strong, so a moderate double-dip recession and/or more expensive debt refinancing would "delay but not derail the return to a valuation based on the long-term fundamentals". Even if this process takes five years and not the three the broker predicts "the stock is still attractive", the broker thinks.Shareholders can get 1.34 new shares for every 1 share held at 37p each. Someone with an average 740 shares will be eligible for 991 of the new ones at a cost of just under £367. Lloyds wants the money to avoid being tied into the government's £260bn toxic asset protection scheme. The Treasury is taking up its rights as part of the issue, investing £5.7bn net of an underwriting fee, to keep its stake in Lloyds at 43%. So, what to do? Whenever a company decides to raise money via a rights issue shareholders have four choices. Each has its benefits, but the final decision will depend on what confidence an investor has in the business' prospects and their own personal circumstances. First option, and the most simple, is do nothing. Your rights have an intrinsic value, so if you can't afford to buy the new shares, don't fancy throwing good money after bad, or just can't be bothered, you'll eventually get a cheque for the difference between the offer price (37p) and the share price when the whole process has finished. Many investors will have become accidental shareholders in Lloyds, having acquired the shares through demutualisations of the Halifax, Cheltenham & Gloucester and Leeds Permanent building societies. A lot of them won't want to pump more cash into Lloyds, or any bank, following the recent market turmoil. If you're feeling a little more energetic, but either don't want to or can't afford to buy more shares, the second option is to sell your rights. Lloyds will sell your nil-paid rights for you, or you can go through a broker. If you owned an average 740 shares and sold your rights at the current price, 19.75p, you'd get about £146. There's a third option if you want to avoid forking out any extra cash, but still want to take up some rights. Shareholders could sell enough of their nil-paid rights to fund the purchase of whatever rights they have left, a process known as "tail swallowing". Lloyds says it will help those who like the idea. Finally, the brave investor might decide to take up their allocation. All eligible shareholders will have received a provisional allotment letter letting them know exactly how many shares they own and what they'll be entitled to through the rights issue. Not made up your mind yet? Jonathan Jackson at broker Killik Capital thinks the shares will remain volatile in the short term, with potential upward pressure from the unwinding of short positions and the prospect of UK institutions upping their holdings in the stock to achieve an index weighting. "In the medium term, however, the shares remain a pure play on UK economic growth (on which we remain cautious) and the ability of management to extract better-than-expected synergies from the HBOS acquisition," he says. There's also the risk that banking sector returns may be capped by the regulator. Charles Stanley doesn't think investors should take up their rights just to avoid dilution. They must believe that additional funds invested will earn a better return than if they were invested in an alternative stock. The broker says Lloyds has a strong franchise which, if managed properly, "is likely to be a powerful force on the UK high street". "However, the next couple of years are still likely to be difficult and of course the group is unlikely to pay a dividend until at least 2011. Our Hold recommendation on the stock remains and therefore we recommend that shareholders sell sufficient nil paid rights in order to take up the balance of their entitlement."
Last checked at 
