half year report, page-2

The rights issue could cause a very interesting situation to occur.

Some shareholders knowing one is coming might be tempted to sit and wait for the rights issue, taking the view that they will increase their holding then at a resonable discount to the market price.

However Institutional investors will know that they need to buy in ahead of a rights issue or step forward to be one of the underwriter of the rights issue. If they want to get a decent sized holding in the company in the near term as a share placing is not on the cards.

If there are a few Institutions who want to invest in the company at this stage of its development, they will be competing with each other to get involved.

They will also know that if the rights issue is priced at a big discount to the then share price, its likely that lots of existing shareholders will take up there rights thus leaving very few shares in the hands of the underwriters. Not what you want if your wanting a decent shareholding.

Therefore it is quite possible that the institutions will treat the rights issue very much like a placing and underwite the issue at close to the then market price. Which in turn is likely to lower the take up of shares by existing shareholders as they might not see a 5% or so discount as attractive.

Thus this approach would most likely give the institutions the best chance of gettting as many shares as they desire.

Food for thought

LOTM