all paid up!, page-4

planethowells asks:
could someone kindly explain what is this rights issue thing?
is it good or bad, who benefits, who doesn't, what's the impact, how long does it last ?

A rights issue - one of several flavours of capital raising. The company wants real spendable ca$h, quick.
Movement of the share price on the open market is simply a matter of private shareholders selling amongst themselves, and has no effect on the cash balance of the company.

So by issuing new shares (often done to a closed circle of "sophisticated investors"), or by making options available, or by providing rights, the company is inviting investors to buy a new slice of the company. The company gets the money, and are thus able to spend it on whatever they do to exist.

Who loses? Every existing shareholder loses, because their 0.0010 % of the company just became 0.00066. This is what is meant by "dilution". It's a literal description, not a metaphor. By creating new shares, the company is reslicing up ownership into a greater number of necessarily smaller pieces.

So, is it always bad? Not necessarily. If the company is well run, and management has real ideas what to do with the money, shareholders will (eventually) benefit.

In your case, sounds like you bought after the rights issue was announced, in other words the market knew dilution was in progress. You avoid the pain. Shareholders who bought in at 0.12 a few weeks ago on the other hand ended up owning 2/3 of what they were strictly speaking paying for (although I would add that since the Progen deal fell through, a capital raising was to be expected).

Who benefits? The company, they get money to spend.
The buyers at the rights issue price. They get the benefit of the company's willingness to sell at a price cheap enough to encourage a high take up.


Basically the company management is saying "trust us, and therefore pay us".

So what did I do? I paid them, I guess that means I trust them.