Explore the intricacies of rights offerings in the world of finance, using the NZ Windfarms case as an example. Discover why companies may set offer prices higher than the market value, ranging from capital raising strategies to expressing confidence in future prospects.
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“The NZ Windfarms rights offer cost .155 per share but stocks are only valued at .144 today and havent been at .155 since last December. Does anybody know how this illogical shit works?”
(Original question on Reddit)
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The situation you’re describing is actually quite common in the world of finance and is part of a process known as a rights offering.
In a rights offering, a company offers its existing shareholders the opportunity to purchase additional shares, usually at a discount to the current market price. The NZ Windfarms rights offer you mentioned is an example of this. They offered their existing shareholders the opportunity to purchase additional shares at a price of NZ$0.155 per share.
You might wonder why the offer price is higher than the current market price. This could be due to a variety of reasons. One possibility is that the company is trying to raise capital. By setting the price higher than the current market price, they can raise more funds.
Another reason could be related to the company’s future prospects. The rights offer price might reflect the company’s confidence in its future performance. In the case of NZ Windfarms, they have announced an agreement with Meridian Energy Limited to pursue the development and repower of the Te Rere Hau wind farm. This could potentially lead to future growth and increased value for the company.
It’s also important to note that shareholders are not obligated to exercise their rights. If they choose not to, they can often sell their rights on the open market.
Before deciding whether to participate in a rights offering, it’s recommended to compare the issue price with the current market price and consider the company’s future prospects. It’s also a good idea to consult with a financial advisor.
Hope this helps.
Regards, Clive Fernandes (Financial Adviser)
Director – National Capital
Disclosure: I am the director of National Capital, a KiwiSaver advice firm. The views expressed in this article are the views of the author. The information provided is of a general nature and is not intended to be personalised financial advice. You may seek appropriate financial advice from a Financial Adviser to suit your individual circumstances or contact National Capital.
