Shareholding army has little choice but to put in more cash
BANK of Ireland's army of small shareholders have been advised to take up all of their rights to buy shares at the discounted price of 55c as part of the bank's capital-raising.
The worst thing for shareholders to do would be to let their rights lapse, the so-called "do nothing option" as their rights would be sold at a low valuation in the market, Bloxham's head of research Kevin McConnell said.
Taking up the full rights and buying shares at the discounted price will enable shareholders to retain the same level of ownership in the company as before the rights issue, Oliver Gilvarry of Dolmen Stockbrokers said.
This was the only way to prevent any further dilution to shareholders from the placing of shares by big financial institutions and the National Pensions Reserve Fund.
BoI shareholders have been diluted three times recently -- from the Government taking a 15.7pc stake in the bank, from institutions buying €500m worth of shares, and the conversion of the Government's preference shares into ordinary shares. Ignoring the rights issue and not taking up the discounted shares they are entitled to will leave shareholders further diluted.
Both Mr Gilvarry and Mr McConnell advised shareholders who cannot afford to fully "follow the money" and take up all of their rights to look to a half-way house solution.
These people could sell half of the rights to the discounted shares they are entitled to, and take up the remainder of the rights.
This option should be cost-neutral, as the cost of selling the rights should be balanced out by the cost of taking up half of their rights.
Mr Gilvarry said: "This is an option usually used by shareholders who have limited funds available and are unable to take up their full entitlement. Such a strategy will minimise the dilution faced by the shareholder and protect the value of their holding."
The bank is unlikely to pay a dividend until September 2012, unless it buys out the Government's preference shares before then.