Right issue back again (2)

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The best way for companies to expand is through their own internal resources and/or increasing their debts to a level without worrying their lenders or bankers. But, when companies can't expand through their own internal resources or raising more debts, they will have no choice but either do private placement or discounted right issues.

Private share placement is obviously suck for existing shareholders and there is no need to debate on it.

But discounted right issues are not so straight forward but may be just fooling existing shareholders to put up more cash to prevent being diluted i.e. higher investment cost to hold more or less the same percentage point in the enlarged base after the right issues.

At the point of right issues, there is no gurantee despites the discount being offered in the rights issue that the company will meet its growth targets or get substantial returns from their increased investments as communicated. If company failed to meet the planned growth target, then EPS could get hit much harder due to the effect of unexpected future reduced profits and higher equity base. One must take serious note that the higher equity base will always be there regardless of its future earning.