Rights issues: should you play the dash for cash?

Cash-strapped companies are going cap in hand to investors to raise fresh capital through rights issues, in which new shares are issued to existing shareholders. Why the rush, and how should investors respond? Tim Bennett explains.

"Desperate times require desperate measures," says Richard Steiner in the Daily Mail. For cash-strapped companies "first it was the banks, then the miners and now property firms" that means rights issues, in which new shares are issued to existing shareholders. The property sector alone has raised around £2bn in the last two weeks, and the same again is expected next month. Land Securities has gone cap in hand to its shareholders for a planned £755m, just as British Land tries to raise £740m and Hammerson £584m. In total, Goldman Sachs estimates that €300bn of new equity will be raised across European stockmarkets this year, excluding the financial sector. In Britain alone, we could see up to £70bn raised in 2009, equivalent to 7% of the value of the FTSE 100, says Nick Hassell in The Times. So why the rush and how should investors respond?

Why rights issues are back

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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.