When companies need to raise money, they often issue new securities to investors. Below, we explain the main types of offers you may come across.
What is a rights issue?
A rights issue is when a company offers existing shareholders the right to buy additional shares, usually at a discount. Shareholders receive “entitlements” based on how many shares they already hold. For example, you might be offered 1 new share for every 5 shares you own.
There are two main types:
Renounceable rights issue: You can trade or sell your rights on the market if you don’t want to take them up.
Non-renounceable rights issue: If you don’t use your rights, they will simply lapse and you’ll get nothing for them.
What is an entitlement offer?
An entitlement offer is another term for a rights issue. It gives shareholders the entitlement (or right) to purchase additional shares. Depending on whether it’s renounceable or non-renounceable, you may or may not be able to trade your entitlements.
What is a share purchase plan (SPP)?
A share purchase plan lets eligible existing shareholders buy a set amount of new shares, often up to a capped dollar amount (e.g. $15,000 per shareholder), at a discount and without paying brokerage. Unlike rights issues, SPPs are usually not tied to the number of shares you already hold.
What is a placement?
A placement is when a company issues new shares directly to investors, often institutional investors, but occasionally these are offered to retail investors. Placements are typically done quickly and at a discount to the current market price. Sometimes retail investors won't get access to placements, although often companies follow them with a retail offer.
What is an ANREO (Accelerated Non-Renounceable Entitlement Offer)?
An ANREO is a specific type of non-renounceable rights issue with two stages:
Institutional offer: Large institutional investors are offered entitlements on an accelerated timetable.
Retail offer: Retail shareholders are then given more time to decide if they want to take up their entitlements.
Key points about ANREOs:
Shares are usually offered at a discount to the current market price.
Because it’s non-renounceable, entitlements cannot be sold or traded.
If you don’t take up your entitlement, it will lapse, and you’ll receive no value.
Any shortfall (unused entitlements) may be allocated to underwriters, sub-underwriters, or sometimes through a placement.
What is a new bond issue?
A new bond issue is when a company raises money by issuing debt securities (bonds) to investors instead of shares. Investors lend money to the company for a set period and receive regular interest payments (called “coupons”). At maturity, the company repays the bond’s face value.
Key points about bond issues:
Fixed income: Investors receive predictable coupon payments, which can be attractive compared to dividends.
Lower risk than shares: Bonds rank ahead of shares if the company runs into financial difficulty, though they still carry risk.
No ownership dilution: Unlike share offers, bond issues do not dilute existing shareholders’ ownership in the company.
Tradable: Many bonds can be bought and sold on the secondary market after issue.
Always check the terms of the offer document, and related information before deciding whether to invest.