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Tuesday, 9 November 2010

Right issue back again (4)

Read? Right issue back again (3)

Before rights issue, e.g. we have X% ownership of the company and if we subscribed to all our entitled rights issues we will still maintain X% ownership of the company but at higher capital holding cost.

But, if we don't fully subscribed to rights issue, then after rights issues our interests in the company i.e. X% ownership is diluted over the entire holding period.

Making some money out of selling rights doesn't negate the impact of diluted interests in the company if we still stay vested in the company over long-term.  That is the reason why I always subscribed fully to any rights issues and have not sell away any rights to lower holding capital cost or thinking that I could made some profits by selling the rights.

So don't get confuse over stock price appreciation due to stock market actions and interests in the company i.e. X% ownership. Interests in the company will entitle us to any future corporate action e.g. the subsequent rights issue,  bonus issues, stock split or consolidation,  etc. These are two different thing - stock price appreciation due to market action and interests in the company. Get it?


  1. Hi CW,
    You "said" that you always subscribed fully to any rights issue.........?
    It's a bit strange to "hear" you said that.
    This means the stocks that you have bought that have rights issue seems to guarantee to prosper in the future?
    Or I have misunderstood you?


    There is no confusion about when being a sucker.
    Just not willing to sell at a loss and not willing to put in more money (at the time of rights issue); Thinking that for this stock this is the amount I want to risk and no more.

  2. I fully subscribed the rights to prevent dilution and to sell or not depending on market actions. These are two independent events.

  3. I also used to fully subscribe to the rights to prevent dilution in the past and to sell or not depending on market actions.
    But from experience, some of the rights issue were "definitely not worth to subscribe" in the first place. It's like throwing good money after bad money.
    So now, I am always weary about rights issue.

  4. Sometime, under such circumstances we may need to bite the bullet and cut loss. We don't need to win back in the same manner that we have lost them!


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