What do you think about HSBA Rights issue?

Tom_Pickering

Below is the info my broker has sent me. Seems a discount at £2.54 compared to the current price of £3.72. Worth buying the Rights offer?

HSBC HLDGS
Action Type: Rights Issue
Description: The Company is to raise up to GBP12.5 billion through a rights issue, with an ex-entitlement date of 20th March 2009.

Shareholders have been credited with 5 Nil Paid Rights for every 12 Ordinary Shares held. Each Nil Paid Right entitles the holder to subscribe for 1 new Ordinary share at a price of GBP2.54 per share

chookie1

Tom_Pickering wrote: »

Below is the info my broker has sent me. Seems a discount at £2.54 compared to the current price of £3.72. Worth buying the Rights offer?

HSBC HLDGS
Action Type: Rights Issue
Description: The Company is to raise up to GBP12.5 billion through a rights issue, with an ex-entitlement date of 20th March 2009.

Shareholders have been credited with 5 Nil Paid Rights for every 12 Ordinary Shares held. Each Nil Paid Right entitles the holder to subscribe for 1 new Ordinary share at a price of GBP2.54 per share

Sadly not as straightforward as it looks - you're not quite paying 2.54 for something worth 3.72. The rights themselves have a value - they're traded separately as HSBN.L and are currently worth ~117p which you could get by selling them. So you are "paying" 117+254 = 371p for them (and in reality the market will hold the share and rights prices such that the total prices are the same).

The decision is really whether you want to commit any more cash to HSBC - if not then you can get the money by selling the rights. If you do nothing then you may get some money if they lapse although you don't control how much this is. Your broker may also allow you to do a nil-cash tender where they sell some of the rights and use the money raised to subscribe for the remainder. Check the small print or give them a call.