How to respond to a rights issue

How do rights issues work, are they good or bad news for shareholders and should you buy in if you are offered one? Tim Bennett explains.

Thanks to the sudden loss of confidence across the economy triggered by the credit crunch, everyone wants, or needs, cash. The result has been a series of rights issues the latest batch of names going cap in hand to shareholders to ask for more money includes banks such as RBS, HBoS and Bradford and Bingley, plus Carlsberg and Johnston Press.

In total, Morgan Stanley estimates that over $100bn of cash will be raised in Europe in the next few months. So how do rights issues work, are they good or bad news for share prices, and what choices do participating shareholders have?

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Tim graduated with a history degree from Cambridge University in 1989 and, after a year of travelling, joined the financial services firm Ernst and Young in 1990, qualifying as a chartered accountant in 1994.

He then moved into financial markets training, designing and running a variety of courses at graduate level and beyond for a range of organisations including the Securities and Investment Institute and UBS. He joined MoneyWeek in 2007.