Prudential has announced a mega rights issue. It will be the largest one in British history. Prudential are raising money to buy AIG’s Asian life assurance business. Prudential are hoping to raise GBP14.5 billion by selling shares to its shareholders.
Whereas small businesses are struggling with liquidity due to lending restrictions, Prudential is borrowing money from its shareholders.
So, why are Prudential wanting to buy an Asian bank during these tough economic times? Is it a safe investment for its shareholders?
Terms of the Pru Rights Issue
Shareholders are entitled to subscribe to 11 shares for every 2 shares held at a call price of 104p per share.
Under the terms of the Rights Issue, Prudential will issue 13,964,557,750 Rights Issue Shares at the Issue Price of 104 pence per Rights Issue Share on the basis of 11 Rights Issue Shares for every 2 Existing Shares held by Qualifying Shareholders on the Record Date of 4 June 2010. The Issue Price for HK Shareholders and Singapore Shareholders is HK$11.78.
The Issue Price of 104 pence per Rights Issue Share represents a 39.3% discount to the theoretical ex-rights price (TERP) based on the Closing Price of a Prudential Share of 542.5 pence on 14 May 2010 and a 80.8% discount to that Closing Price.
The Rights Issue is expected to raise proceeds of approximately £13.8 billion (net of fees and Transaction-related expenses) and is fully underwritten by Credit Suisse, HSBC and J.P. Morgan Cazenove together with a syndicate of other underwriters.
- Nil paid sedol: B64R3G5 – PRUDENTIAL ORD GBP0.05 (N/P 23/06/10)
- Ex-date: 8 June 2010 – this is the date that the nil paid rights will be added to your account. The market price of the ordinary shares will fall to compensate these additional shares. They start trading on this date.
- Pay Date: 23 June 2010 – the closing date has been announced as the 23 June 2010, this is likely to be the paydate, when the call is paid and the nil paid rights converted to ordinary shares.
See the latest Pru prices.
Equation to Sell Rights to Take Up
In response to one of our readers (Joyce) we have added an equation to allow ISA holders (or any shareholder) to quickly calculate how many nil paid rights you need to sell to take up the remaining using the sale proceeds.
No of nil paid rights to sell = Your holding X (Call Price – Total price of nil paid rights incl. fees).
If rights trade at about 20p, and with any brokerage fees the value to sell is £0.20. For a holding of 22,000 nil paids (based on a holding of 2,000 ordinary shares) your calculation is:
22,000 x (1.04 – 0.20) = 18480 nil paid rights. These will give you £3696.00.
Then to take up the remaining 3520 nil paids (i.e. 22,000-18480) your call is £3660.80 which leaves you with £35 left over. If you fiddle with the figures you may find that you can sell 1 or 2 nil paid less and end up with less money left over.