Hoa: Good afternoon Ms. Hien, can I come in?

Hien: Oh, hi. Sure! You must be Thanh Hoa, right ?

Hoa: Yes. Thank you for accepting my meeting about the right issue problem for my
examination. I’ve almost done with the content but still have some unclear points.
Would you please exchange your knowledge with me?

Hien: Of course. That’s my honor /ˈɒn.ər/. So what progress /ˈprəʊ.ɡres/ have you
made?

Hoa: Oh. I think I’m gonna show you the information that I researched and tell you
about my confusion. Is this fine?

Hien: Absolutely. Just dive into your research online and I’ll help you make it.

Hoa: So As I found out, a rights issue is about an invitation to existing shareholders to

purchase additional new shares in the company. But I am not understanding how can
companies can deceive the shareholders to do this?

Hien: I see. This type of issue gives existing shareholders securities called rights. So,
with the rights, the shareholder can purchase new shares at a discount to the market
price on a stated future date. And then the company is giving shareholders a chance
to increase their exposure /ɪkˈspəʊ.ʒər/ to the stock /stɒk/ at a discount price.

Hoa: Ahhhh. I got it.

Hien: Well then. You should research about how the over‐subscription /səbˈskrɪp.ʃən/
privilege /ˈprɪv.əl.ɪdʒ/ work, since the project must cover that as well.

Hoa: Really? I’m supposed to ask you some information about this. I googled it and
noticed that some rights issues include an "over‐subscription privilege", allowing
investors to buy additional shares beyond the number offered with the basic
subscription privilege if those additional shares are available.

Hien: Sure. But I want you to look a bit more deeply into subscription than that. I
notice that this is about the number of over‐subscription shares that can be purchased
by an investor is capped as no more than the amount of his/her basic subscription.

Hien: And you know what? If not all the over-subscription rights can be filled, they will
be partially /ˈpɑː.ʃəl.i/ filled on a pro-rata /ˌproʊ ˈreɪ.t̬ə/ basis.

Hien: So, How about the idea of rights issue offering? Show me something that you
analyzed from the Internet.

Hoa: I attempted to cover it. So far, I’ve found out that companies most commonly
have rights issues offering to raise additional capital. Furthermore, a company may
need extra capital to meet its current financial obligations. And troubled companies
typically use rights issues to pay down debt, especially when they are unable to
borrow more money.

Hoa: So I don’t know that just only the company is in trouble is allowed to use this
right?
Hien: Ok, Let me explain this to you, you know, the fact that not all companies that
pursue rights offerings are in financial trouble /ˈtrʌb.əl/.Because even companies with
clean balance sheets may use rights issues.

Hien: I mean these issues might be a way to raise /reɪz/ extra capital to fund

expenditures /ɪkˈspen.dɪ.tʃər/ designed to expand the company's business, such as

acquisitions /ˌæk.wəˈzɪʃ.ən/ or opening new facilities for manufacturing /ˌmæn.jə
ˈfæk.tʃɚ.ɪŋ/ or sales.

Hien: And you know if the company is using the extra capital to fund expansion, it can
eventually lead to increased capital gains for shareholders despite the dilution /daɪ
ˈluː.ʃən/ of the outstanding /ˌaʊtˈstæn.dɪŋ/ shares as a result of the rights offering.

Hoa: And I think for reassurance (ri,ơ,sơ,rance) , a company will usually, but not
always, have its rights issue underwritten by an investment bank, right?

Hien: Tremendous. But could you add some details about some examples to your

analysis /əˈnæl.ə.sɪs/?

Hoa: Yesterday, I saw a case in newspapers related to the rights issue and I bring it to
my research paper. Let me show you.

Hien: Oh, all right.

Hoa: Hmm. Company X has 100 million outstanding shares. The share price currently
quoted on the stock exchanges is $400 thus the market capitalization of the stock
would be $40 billion.

Hoa: But what happens if the shareholders of the company choose to exercise their
stock option.

Hien: Obviously, the company's outstanding shares would increase by 100 million. And
you know about the market capitalization /ˌkæp.ə.t̬əl.əˈzeɪ.ʃən/ of the stock would
evolve /ɪˈvɒlv/ to $60 billion that includes previous /ˈpriː.vi.əs/market capitalization +
cash received from owners of rights converting /kənˈvɜːt/ their rights to shares. And
furthermore, that I remember is implying /ɪmˈplaɪ/ a share price of $300. Do you want
me to explain this deeper?

Hoa: Very kind of you but I almost got it. I do need you in how does right issue works.
I’m still confused about this. On Google, there’s tons of information so I don’t know
which one is the best.

Hien: Hmm… Let's say you own 1,000 shares in Wobble /ˈwɒb.əl/

Telecom /ˈtel.ɪ.kɒm/ , and each of which is worth $5.50. And then, the company is in
financial trouble and needs to raise cash to cover its debt /det/ obligations /ˌɒb.lɪ
ˈɡeɪ.ʃən/.

Hien: In other words, for every 10 shares you hold, Wobble is offering you another
three at a deeply discounted price of $3. Perhaps, this price is 45% less than the $5.50
price at which Wobble stock trades /treɪd/. That’s all.
Hoa: Ah. Can you check the advantages of the rights issue that I found out? I’m gonna
show you this right now.

Hien: Ok fine. Go for it.

Hoa: So I think the right issue of shares is an opportunity for current shareholders to
increase their stake (stay,k) in a company at a reduced cost. It is cheaper than a public
share issue. And the company will save a significant amount of money, such as
underwriting fees, advertisement costs, and so on.

Hoa: As a shareholder, you have three options with a rights issue. You can subscribe to
the rights issue in full, ignore your rights, or (3) just sell the rights to someone else.
Below we explore each option and the possible outcomes.

Hien: That’s all good. And I’ll read through some other studies I found proving that
your work is well-done and enough information that needed.

Hoa: Oh really. Thank you so much.

Hien: Unfortunately /ʌnˈfɔː.tʃən.ət.li/, today I have an important appointment with

Mr. Phong and I just still have 10 minutes left before I gotta go. Is there anything else
that you need to know?

Hoa: No no, that’s enough. Thanks for spending time to identify altogether about my
research paper.

Hien: I’ll never mind. Next time, make sure that if you’ll confuse about anything, you
can ask me so I can give you some additional feedback.

Hoa: See you later, Ms.Hien.