Rolls Royce Rights Issue

greatcrested

RE: ROLLS ROYCE HLDGS ORD GBP0.20

I refer to your holding of 713 shares in the above security. The Company has recently announced a Rights Issue and the terms are 10 for every 3 Ordinary held at 32p per share. Under the terms of the offer, as you purchased the shares prior to the ex-rights date you will receive 2376 Nil Paid shares. You may then make one of the following elections:

1.  Accept the offer, thereby exchanging your Nil Paid shares at a total cost of £760.32 for 2376 New Ordinary shares.
2.  Sell your Nil Paid shares (through our dealers on the usual telephone dealing line).
3.  Take no action - in this case your right to exchange your Nil Paid shares will lapse and the Nil Paid holdings will be removed from your account. Any proceeds which may be payable on these lapsed rights will be credited to your account.

Not sure what 'Nil Paid Shares' are.

With 2) does that mean I get £760.32? Perhaps less dealing fee?

With 3) what 'proceeds'? Is that not the same as 2) ?

Thrugelmir

Nil paid rights will be traded in the market like any other security. In effect you are giving up your right to purchase the shares on offer. The nil rights could trade at say 5p each, You would receive your holding times the selling price less any normal brokers trading fee. 

If you take no action then the Company will sell them on your behalf (in bulk with other such holders).  The rights issue will have been underwritten to ensure that the Company raises the funding required. 

203846930

The way I read the letter for C is that you can sell your right to take up the offer meaning that someone else will pay to get the chance to buy the shares that are allotted to you at 10 for every 3 held.

JGB1955

1) means that in exchange for you paying £760.32, you will receive an additional 2376 shares
2) means that you can then sell those 2376 (and the original 713) on the open market
3) do nothing and wait to see how much you receive (but it won't be anything like the £700).

bowlhead99

greatcrested said:

RE: ROLLS ROYCE HLDGS ORD GBP0.20

I refer to your holding of 713 shares in the above security. The Company has recently announced a Rights Issue and the terms are 10 for every 3 Ordinary held at 32p per share. Under the terms of the offer, as you purchased the shares prior to the ex-rights date you will receive 2376 Nil Paid shares. You may then make one of the following elections:

1.  Accept the offer, thereby exchanging your Nil Paid shares at a total cost of £760.32 for 2376 New Ordinary shares.
2.  Sell your Nil Paid shares (through our dealers on the usual telephone dealing line).
3.  Take no action - in this case your right to exchange your Nil Paid shares will lapse and the Nil Paid holdings will be removed from your account. Any proceeds which may be payable on these lapsed rights will be credited to your account.

Not sure what 'Nil Paid Shares' are.

The company is trying to raise money, and these are shares issued by the company on which no money has been paid to the company yet; as opposed to the fully paid shares that you already hold.

You've got 10 of these nil paid rights for every 3 fully paid shares you used to have, which is why you have 2376 of them for the 713 'proper' shares you had.

They each give you the right to turn them into normal fully paid shares at a cost of 32p each, if you want, by giving that money to the company. The market considers the normal fully paid shares to be worth more than 32p, so owning these 'nil paid rights' is something that has some value.

The opportunity at point 1 is to accept the offer to exercise your rights and pay them 32p for each of those 2376 nil-paid shares that you own, and then you will have 2376 shares that are fully paid, for a cost of £760.32; and you will still have the other 713 shares that you had all along. So in total you will have 3089 fully paid shares, but it will have cost you the £760.32.

With 2) does that mean I get £760.32? Perhaps less dealing fee?

The opportunity at point 2 if you don't want to use your rights is to sell them to someone else who does. The fair market price for the rights should be roughly whatever the real shares are now worth less the 32p cost to convert them.  So if I think the real shares are worth 82p, I would be willing to pay you 50p to buy one of your rights to get a real share from the company in exchange for my giving the company 32p of cash to boost its coffers.

If you don't take the opportunity (1) to give the company 32p per nilpaid share and get a real share in return, you will do (2) or (3) instead.

2 is selling your rights to whoever wants them at the current price

3 is, you don't get round to doing anything with the rights so they lapse, but just at the moment that is about to happen the company will arrange for someone else to buy them in bulk from you and other holders and exercise them by giving the company all the 32ps. You will get paid the going rate at that point.

That figure you end up with at 3 won't be the same figure as 2 (the proceeds you could get today by selling your rights over the phone), because the market will have moved up or down by that point. And it's unlikely to be the same figure as 1 other than by complete coincidence  - because remember the figure for 1 is what you pay the company to convert shares to fully paid i.e. 32p each, whereas the figure for 2 is what someone would pay you for the right to be able to give the company 32p and end up with a real share (e.g. 50p)

If you do nothing and just wait for (3) to happen - if at that time the company share price for the normal fully paid shares is only 62p, you'll only make 30p, because the ability to get 62p-worth of real share in exchange for 32p cash is only worth 30p to someone who would like to buy the real shares.   However, if the share price of the normal fully paid shares at that point is 92p, the right to get 92p of real share in exchange for 32p cash is worth 60p  to someone who would like to buy the real shares.  This means the value of the nil-paid rights can be quite volatile, because if the share price goes up from 62p to 92p (about 50%) the value of the nil-paid rights would go up from 30p to 60p (100%).  

203846930

With the price crashing today it will be a tough decision whether to buy the shares or not.

bowlhead99

duncanthedog said:

With the price crashing today it will be a tough decision whether to buy the shares or not.

The price 'crash' was pretty much as expected.

 Let's say yesterday morning you had 3 shares 'worth' 230p each (total 690p) and today the company issued 10 more nil paid rights shares for every 3 of those old shares, for which the company will get 320p when people exercise the rights to pay up those 10 new shares at 32p each. The total 'value' of those 13 shares you can now hold is 690p plus 320p = 1010p, split between 13 shares = 77p. Actually the share price closed at 82p today. So that seems fair in terms of what is the new price per share given the fact they needed to raise a lot of new money, which was already known anyway.

So, hardly a 'crash' today, especially given the wider stockmarket did fall a few percent.

Kontiki

I only have 210 shares & am willing to take a chance as its only £224, had my shares for a long time & must have had my money back in dividends.

Am I correct in that I just need to tick the box

'A Take Up All Of Your Rights' and send the cheque or is there anything else I need to fill in? Finding at my age the print on these forms seems to be getting smaller so even with my reading glasses I would need a magnifying glass.

itwasntme001

Kontiki said:

I only have 210 shares & am willing to take a chance as its only £224, had my shares for a long time & must have had my money back in dividends.

Am I correct in that I just need to tick the box

'A Take Up All Of Your Rights' and send the cheque or is there anything else I need to fill in? Finding at my age the print on these forms seems to be getting smaller so even with my reading glasses I would need a magnifying glass.

I sold my Dad's shares in RR just a few months before they crashed.  He had held it since IPO.  I worked it out that he would have been better off keeping the cash in a savings accounts for the roughly 3 decades he had held them, even taking into account the dividends (which were not reinvested mind you).

It's a clear lesson that individual company shares are very risky given the company specific risks you take on and should be monitored regularly if you really are investing in them (as opposed to punting).

It is the reason why I have nearly all my portfolio in diversified funds.

greatcrested

Thanks all.

Yes difficult decision but I think I'll call it a day and not plough further £ in.

I've had them for decades too, I think bought in my relative youth/ignorance after working abroad and earning some good money. Have periodically watched the value go up but never really needing the cash have just hung on.

I have a couple of other small historic shareholdings, but most is in funds.

Thanks again.

drphila

I purchased these shares some years ago but they don’t really fit with my current portfolio and I certainly wouldn’t be buying any now if I wasn’t an existing holder. At the same time, I don’t want to lock-in the current significant paper losses I’ve made with this stock.

So in order to maintain my current holding value, I intend to tail swallow, ie sell enough of the nil-paid rights to cover the cost of buying the rest.