rights issues do they affect the share price

[salsanova1]

hi ,
i'm interested to know if anyone would enlighten me about share rights issues.i notice they are only available to residents, not overseas expats.also the issues are usually at a lower price than the market .i am guessing , in which case ,this will inturn increase the number of share sales from would be profit makers and reduce the share price .would someone like to please explain
salsa

[Lawso]

I'm not sure what your question is, sals, but I'll do my best to explain, in view of the lack of response from others more knowledgeable.
When a company makes an issue of new shares to existing holders, either as a bonus issue or at a discount price below the current market price, then the holder has rights to the new shares and those rights have a value which can be traded. Normally that value is the difference between the price of the new shares and market price - it's usually just a few cents. When the rights are exercised then of course the number of shares on issue increases. The m p may fall in proportion, but this is not always the case if the company is well regarded by the market. So I suppose the answer to the question in your heading is "Not necessarily". OK?

[Neo-Con]

In theory all other things being equal rights issues should reduce the share price. The easiest way to illustrate this is to look at a company that has only one asset, cash. The company owns $8 of cash and has 4 shares, the share price then should be $2. Now say the company does a rights issue where for every 4 shares you currently have you can buy one share for $1. Supposing the single shareholder takes up his one right. The company now has $9 and 5 shares therefore the fair share price has fallen to $1.80. Obviously in real life there are a number of things going on at once so one may not observe a fall in price but generally the fall will be greater(a) the further below the current share price the rights price is and (b) the greater the number of rights issued.

[salsanova1]

hi ,what if it is a company in its infancy and they are out to raise cash .the share price is around 0.27c and the directors produce a rights issue at say 0.15c in this situation i would think the share s @ .027c would be seen at to higher value by the market in
is this senario is it in charactor with (neo-con) comment.
great thanks for the feed back

[Neo-Con]

the share price before the rights issue should be unaffected. But the day the share loses the rights the price in theory should fall (but weird things can happen). The rights have value (they can be sold, thereby making money for the investor) so when the share loses the rights they will fall in value. A bit like a dividend after its record date.