(4) Selling Partial Or All Of The Rights To Other Investors In Renounceable Rights Issue
It is one of the most wonderful techniques to tackle a given rights issue of a company. Rights issue may also carry a certain value for rights apart from shares themselves. This type of rights issue is often known as renounceable rights issue.
Renounceable rights issue is the issue in which rights have a value as they can be traded in the open market before record date. Renounceable rights are also known as “transferable” or “tradable” rights.
Several shareholders prefer to make money by selling their rights to other investors. This strategy is particularly adopted when they are not willing to exercise their rights to buy additional new shares.
Additionally, this strategy also works when shareholders lacks sufficient amount of funds to subscribe right issue. However, one can’t sell his/her rights to other investors if the issue is non-renounceable in nature.
Thus, renounceable nature of rights issue plays a significant role in the success of this strategy.
(5) Selling Enough Rights Simply To Fund Purchasing Of Remaining Rights Shares
It is one of the most popular techniques to tackle a given rights issue of a company. As stated earlier, renounceable rights issue can be sold to other investors for generating cash.
In absence of cash, shareholders can sell enough rights simply to fund the purchasing of remaining rights shares in the issue. This process is popularly known as “Tail-Swallowing”.
This strategy helps an investor to acquire discounted shares even when he/she is not having sufficient amount of funds for subscription purpose. Additionally, one can also adopt this strategy when he/she is not willing to invest further cash in an underlying company.
Therefore, shareholders can easily prevent the possibility of stake dilution due to rights issue in absence of readily-available cash. However, this strategy is again possible with renounceable rights issue only.
Simultaneously, the process of selling should be done before the subscription deadline. This precautionary step is necessary to remain eligible for subscribing rights issue.
- Best Trading Strategies To Make Money In Rights Issue: Shutterstock