What happens if you don't take up a "rights issue"

Can anyone tell me what happens if I don’t take up the right issue (eg TUI). Am I correct in thinking my rights would be sold on the open market and I would get the difference between the share price at the time and the rights offer price?



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Depends on the individual rights issue, but generally you can sell them on the open market, if you don’t intend to partake yourself.

Will depend on the broker to some extent I imagine, since you’re probably going to expect your nominee to handle this

The message from T212 says that if I don’t take it up they will “sell the rights on the market on my behalf”. However, I’d like to know at what price (or how it’s worked out), so I can make an informed decision.

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I don’t think anyone would know your exact answer without a crystal ball.

The markets as you know are volatile so if there was a large influx of sellers in the rights the price could drop below value.

Normally the rights should be valued around parent less exercise price if a 1:1 conversion ratio.

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But can you tell me the basis on what the calculation is? Is it share price at the time minus the offer price? Obviously the offer price is fixed but I’m aware the share price could fall below this. I’m just keen to know the basis of the calculation.

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It all depends on market trend. If you have zero buyers and lots of sellers - the price will drop below parent less exercise costs.

@CirensOC Here’s a link to a thread where you’ll find your answer :pray:

Thank you, I’ve just posted a quick question in there to try and get to the heart of what I’m asking.

In your example you are being offered to buy a £6 share for £4.88 - so assuming no other changes and you bought the share for £4.88 and immediately sold it for £6, you would make £1.22 a share so £112.

But in reality the market is not 100% efficient, so you might get more/less, especially if the rights are trading in the market at say £0.80, then you would only get £80.

The rights would have to trade at less than market value to be worth purchasing I imagine, so probably make less than £122

Except for minor imperfections due to liquidity or trading venues, markets tend to not have any arbitrage (since any wealthy individual would just use such arbitrage for a riskless profit).

What it means is that since you are getting the same thing from buying and exercising a right issue, or buying a share (that is, you’re getting a share), both financial contracts must be priced the same.

If the right has an exercise of 4.88, the right itself must be priced at SP-4.88, or very close to it.

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Thank you for writing this question so succinctly. I’ve been trying to get an answer to this myself all week. The helpdesk have been absolutely useless and have not given me a straight answer. I’m pretty sure that what you get as rights is the difference between the offer price and the market price of the time. So in your example, £1.12 per share times the number of shares.

If they were going to give you the full share price times the number of shares, then there will be no reason for anybody to buy the shares would there!

But what happens if you do subscribe to the offer and the price falls to under £4.88? Is the loste just written off by tui?

If you subscribe then you are exposed to movement in the parent price from the point you agree to pay the subscription price.

it would make sense for 212 to add a help section that when you don’t subscribe to rights, they sell them at the last available opportunity to get you some value when possible rather than expiring and gaining nothing.

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Sorry, I misprinted the question. I meant to say what if you do not subscribe and then the share price falls below the offer price? Does TUI just take the loss on the nose?

Rights are generally but not always used to raise additional funds by offering shares to current investors first, with an incentive being the subscription price is usually cheaper than the market price.

If the parent price drops so that the rights become worthless, no one loses money, but the company may not raise as much funds as it needs.

Thank you. That explains it.

I am right thinking they just sell the shares they offer you, and not the shares held?

I got mixed up when I first saw it and bought more thinking they will sell it (the position) on me. :joy:

So if they sell them on your behalf, you are compensated for the difference then?

I dread to think if EuroBox tried offering me 5100+ shares at 50p when I don’t have thousands in my bank.

I fixed it.

There is more official details on the help section if you do not do anything with your rights.