Nil-paid rights

Nil-paid rights arise when a firm sells new shares for cash to existing shareholders via a rights issue.

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.

Recommended

Resource curse
Glossary

Resource curse

The term “resource curse” refers to the observation that countries with abundant natural resources also tend to be less economically developed than th…
14 Jan 2021
Balance of payments
Glossary

Balance of payments

The balance of payments refers to the accounts that sum up a country's financial position relative to other countries.
8 Jan 2021
Yield-curve control
Glossary

Yield-curve control

Yield-curve control is when a central bank aims to control long-term interest rates by pledging to buy (or sell) as many long-term bonds as needed to …
25 Dec 2020
Intangible assets
Glossary

Intangible assets

An intangible asset is anything that a company owns that isn’t physical.
25 Sep 2020

Most Popular

Why we won’t see a house-price crash in 2021
House prices

Why we won’t see a house-price crash in 2021

Lockdown sent house prices berserk as cooped up home-workers fled for bigger properties in the country. And while they won’t rise quite as much this y…
18 Jan 2021
Inflation is the easiest way out of this – just don’t expect politicians to admit it
Inflation

Inflation is the easiest way out of this – just don’t expect politicians to admit it

The UK government borrowed £34.1bn in December, a record amount for that month. Britain's debt pile now amounts to 100% of GDP. How are we going to pa…
22 Jan 2021
When will the US stockmarket bubble burst?
US stockmarkets

When will the US stockmarket bubble burst?

With US stocks more expensive than before the Wall Street crash of 1929, there are growing signs of “mania”. But what will push markets over the edge?
22 Jan 2021