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A RI is an entitlement for you to get the shares. Thats why its different from placing. If the Company has allotted a certain number of RI shares to you, one one else can buy them unless you let it lapse. On the other hand in a regular placing, the shares are issued to all, existing and non existing shareholders. You are entitled to nothing. If you have to buy, you need to in open market. Let me explain with an example:
Lets say: Current SP is 200p; Total number of shares Out of the Company is: 1000 shares; you own 100 shares (10%); your own purchase price is also lets say also 200p.
Now lets say the Company issues RI at the ratio of 1 shares for every 2 shares held at a RI price of 100p. So in total 500 new shares will be issued.
Since you own 100 shares, you get 50 shares too. Its yours and no one can buy it unless you let it lapse. If you chose to buy it, you will pay £50.
The new Company TERP is: 1000 shares X 200p + 500 shares x 100p / 1000 shares + 500 shares = 166p. Now the stock should trade at that level on ex rights date instead of 200p. In reality there will be premium or discount depending on demand for shares.
At the same time your own new average is: 100 shares X 200p + 50 shares X 100p / 150 shares = 166p instead of 200p.
So in short, by participating in the rights you get to equal your average to companys price again.
Now if your average price was lower than 200p at the time of rights issue and you participated, you would have had a lower average than 166p.
As far as dilution is concerned, you owned 10% of the company shares and after Ri you still own that much: 150 shares / 1500 shares = 10%.
If you still chose not to participate, you should atleast sell your Nil rights so you can preserve your value in shares. That is to say you buy rights at 100 and sell at TERP. Instead of you going through that process, the underwriters through your brokers allow you to just sell and take the differential which in my example is difference between 166p and 100p. Thats when NIl rights are reconcilable and most RI issues are. Hope this helps.
I should clarify as i think you asked if you have to be shareholder when they annouce. Sorry. That will depend on what the timetable will say on the day of announcement. Usually companies set the date of record for you to be a shareholder to a few days after the announcement or atleast a day after. But at the same time the RI price is set based on the price at close one day prior to that announcement. So the Terp etc is calculated on that price.
Hi @Sammykin, you said it right. RI is only given to existing shareholders. Thats why there is no dilution of your shares if you participate. I think part of the rise is market as most cyclicals are up and part because perhaps some investors were waiting on sidelines and now getting in incase the RI price is set for Monday.
I think the RI is certain but amount and timing is still not. Ideally it should happen next week but we can only know on 8th. If the company really needs the money, they should announce and raise capital to de-risk themselves of any future outcome and for shareholders to also move on. They had to go through shareholders and that technical overhang will now be gone.
Hi @BIGB, usually some other shareholder would take it as you would likely sell your NIL rights, but lets say its unsubscribed, these rights issue are usually underwritten so the underwriting banks take them and place them in the market. Its usually not a big number in any case. Hope this helps.
In my view, i dont think anyone should let a rights issue lapse, they should sell their NIL rights atleast to get some free money:).
Hi @anewman, it will really depend on how long it takes for people to come back to theaters. If a vaccine is out in Nov / Dec or thereabouts, i think the market sentiment on next year revenue and potential will override any additional debt risk, infact they shouldnt need any more debt. In the short term before that, i dont think the risk is that high as there is no debt due or to be paid. Some people losely use the words "risk that they wont be able to pay debt". There is nothing to repay this or next year. All they need is to service interest cost for which they have money.
@MOOla, thats correct and i agree. If the results show is net positive on better cash burn, losses etc then this stock will fly. Hence, the wait for the results as what it will be is still an unknown. All i am saying is that could be also a reason for the overhang.
I agree with those who think this stock wont go far until results. The market would want to see how bad the damage is as nothing has been on paper since Covid peaked, irrespective of growth next year
Understood and you might be right. But i feel debt holders are also investors at the end of the day and in many cases own debt and shares through different funds. I dont see why they wont agree to relax the test or increase it temporarily for a business which will go back to making revenues next year. Its not a business whose products / services are no longer needed and therefore a threat of not getting debt serviced or repayment of debt. DO you think this company wont make money next year? There are many examples where this happened recently as companies have gone back to debt holders to extend / further relax covenants. Its a big hassle and lengthy process for debt holders to call on their debt or call for liquidation. Its a last resort they want to deploy.
Hi @Saint Tropez, not sure what your motivation to previous post on red flag was, but you have got the news on GCT conceptually wrong. It has nothing to do with Cineworld. GCT is refinancing its own business for whatsoever reasons and providing a charge on Cine shares. This is no refinancing of Cine balance sheet at all.
Hi @WASU, its all usually provided in the timetable attached to the RI announcement. The date when shares will trade ex rights is mentioned in the timetable, 180p in your example. But although it should trade at TERP, it does not exactly happen that way as demand supply for the share puts it a bit higher or lower than that price. For example, again going back to whitbread:), the TERP was set at 2395p in announcement but on day of announcement, it went down to 2100p before going back up.
Similarly, the timeframe for buying RI is also provided.
Agree, Seems so! Important is to also see if schools reopen in US. Most schools seems to keep it optional for students to chose online study or undecided.
Did the CEO of their US Transit Business business also leave / got replaced yesterday?
Its not only about economic interest, its also actually infact more depends on how board etc is composed. As far as i remember of what i read in highlights of docs from memory, the CEO of the JV will be Carlsberg CEO and Chairman will be Marstons CEO. Rest of the board will also be quite equal. Moreover, in the docs at least, Marstons has reserved a lot of say on how cash can be used including minimum dividend payments. What in reality will happen, obviously no one knows, but going by on the ground facts its structured as a JV, and thats why they call it as such. I am also quite sure, Marstons will fully consolidate results and accounting will not be an equity investment. I am sure Marstons must have delved into Vodafone as case study. They are a smart operator and want to create shareholder value. The timing of the JV was good to get the much needed cash support and the synergies of more than £20m EBITDA, although i am note sure of Carlsberg as a brand in UK.
?? Not sure if i said they will keep the cash. Sorry, basic valuation on share price. EV - "Net Debt" = Market Cap / shares = share price. If they get cash, it reduces net debt. Doesnt matter if they keep cash in hand or pay debt. Its Net Debt thats important. Obviously, any company will pay down debt rather than holding it in bank account. BTW, they have not given up 100% control. Its a JV.
Its trading at these levels near term because of the risk of second wave. Infact most shares in restaurants / hospitality / airlines are. All these shares are trading at or near levels of what they were on 22nd May. Check Mitchell for example.
For Marstons, remember they got cash of c.£250m which equates to c. 30cents per share. Thats why it went up from 35p per share to c.66p per share on the day of announcement. Near term it will surely go up to those levels again subject to second wave not becoming a reality. The news of Leicester lockdown started this with worry of other areas also needing a lockdown after a spike in R factor. With pubs opening, this risk has gone higher. If there is no negative news on this for the next week, i think these will rise again. Anyhow, these are good buying levels.