Nil-paid rights arise when a firm sells new shares for cash to existing shareholders via a rights issue. So, for example, a firm might offer one new share priced at, say, £1 for every four currently held. That's called a 'one for four' issue. Let's say the current share price is £2.50. So after the new share has been issued you would expect the firm's shares to trade at around £2.20 (4 x £2.50 = £10. And (£10 + £1)/5 is £2.20). That's called the ex-rights price.
Any shareholder can choose not to take up their rights, in which case they can often be sold. The 'nil-paid' price is the difference between the issue price and the expected ex-rights price. Here that's £2.20 £1 = £1.20. Another investor who was not invited to participate in the original rights issue might be interested in paying for nil-paid rights instead.
MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
-
HMRC confirms crypto ETN ISA rulesWith crypto ETNs now technically available for UK retail investors, HMRC has confirmed they can be held in an ISA – but there’s a complication
-
Pensioners targeted in fine wine scams – the tactics to watch forWine has emerged as the latest lure in investment fraud, with pensioners being specifically targeted by scammers
