This is a picture of a stick. It also bears an uncanny resemblance to the chart for Royal Bank of Scotland nil-paid stock – the virtual bits of paper that give holders the right to buy, at 200p apiece, one of the 6,123,010,462 new shares RBS is planning to print.
Closing prices for the nil-paids since trading kicked off five sessions ago: 76p, 68p 55.75p, 53p, 41p.
The deadline for exercising these rights is June 6. If the price were to go to zero during the dozen intervening trading days, we can assume that a sizeable portion of the issue will fall on Goldman Sachs, Merrill Lynch, and UBS – or on the sub-underwriters who have assumed the risk.
It’s called “the stick” – and if and when one materialises, the resultant cloud over the company concerned tends to linger for years. No matter that the firm has got the money it sought to raise; investors know there is an overhang and the share price suffers as a result.
Related links:
RBS rights issue prospectus
Uncertainty clouds rights issues by banks – FT analysis