Hi there, i am in need of some advice.

I have recently bought some shares of RIO.AX in australia for around 70AUD. The following day there was a sudden drop of price to around 50AUD. After some reading, i learned it was because of some right issues that were being traded. They are said to be trading at around 28AUD. I read that "Under the offer, 21 new Rio Tinto shares will be offered for every 40 existing shares, at a subscription price of $28.29 each, which reflects a 57.7 per cent discount."

What do you think i should do?

If i dont buy the rights issue, does the value of my stock drop from its purchased price of 70 to the current price of around 50? Or will i be receiving more units from my initial purchase? I am quite confused about this rights issue thing and could use some clarification.

Additionally, if i decide to buy the rights issue, how do i go about doing it? Do i buy it directly from RIO or from the australian stock market ASX (RIOR.AX)

Many thanks.

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This post has been edited by elhh82: Jun 19 2009, 11:39 PM

ok..

Two additional questions.

What is the difference between buying the RIO rights issue on the stock market or buy RIO shares?

The rights issue, RIOR is trading at around 22AUD while RIO is trading at about 50AUD.

Lastly, should i purchase the rights issue from RIO itself at $28.29 or on the stock market for around $22?

wait, you should already have the right share in your account.

You can either choose to sell those right in the market now,

or you can exercise the right and convert into rio shares, by topping a fixed amount.

you should get with your broker.

oh ok.. so if i choose to convert the right issues into shares, they will become ordinary shares and be valued at $50 or whatever value that RIO is trading at when the rights issue period closes?

If i can buy the rights are selling on the market for $22, why would people still buy RIO shares at $50?

the rights have to be topped up with extra cash.

"21 new Rio Tinto shares will be offered for every 40 existing shares"

You should already have the rights in your account. Companies don't issue rights and offer them to the public. They give them to existing shareholders (i.e. you). The rights you see that are trading are other shareholders who decided not to exercise their rights and so are trying to sell them instead.

"at a subscription price of $28.29 each"

Rights by themselves are worthless. If your Rio shares are trading at $50, if you buy extra rights at a price higher than $21.71 you would actually lose money (e.g. you pay $25 to buy the rights, then pay an additional $28.29, so you ended up paying $53.29 for a share worth $50). However for your existing rights that were given "free" by the company, you only need to pay $28.29 to get a share worth $50.

So your main decision now is should you exercise your rights or should you sell them.

This post has been edited by deodorant: Jun 19 2009, 11:30 PM

Just make sure you either sell the right, or take them up at the issue price. If not you will buta buta lose money.

So basically what i should do now is purchase my existing rights at 28.29 to get them worth $50 right?

Thanks alot for the the clarification. Really appreciate it.

you can also sell the rights in the market, to get the cash immediately, instead of getting more shares.