Know your rights ahead of RBS deadline says The Share Centre

Ahead of the deadline for next week's rights issue by Royal Bank of Scotland, Nick Raynor, Investment Adviser at The Share Centre outlines the options for investors: "As the first bank to offer a rights issue on the back of the credit crunch, many will be following the progress of RBS next week with interest. The move will see 6 billion new shares released into the market; the rights issue is fully backed by Goldman Sachs, UBS and Merrill Lynch.

"Although we are yet to see the full impact of the ABN Amro purchase, RBS is making the right moves in shoring itself up against longer term uncertainty in the markets. It has already committed to paying future dividends as shares and not cash - which could be a way of protecting its balance sheet following the ABN Amro acquisition - and is set to raise an additional £4 billion by selling off its insurance units, Churchill and Direct Line.

"As such, if investors can afford to take up the rights issue then we would recommend doing so as we still see banks as a good longer term investment. Investors who do not have the extra cash to hand could consider using some of the money paid in the recent dividend (May 23rd). Any shareholders who decide not to exercise their rights should be aware that their allocation will be sold into the market which may dilute their initial holding."

Key dates for private investors

4th June: deadline for nominee shareholders
6th June at 3pm: deadline for certificated shareholders

What are the options?

Send a cheque or use available cash in a nominee account for the outstanding balance.
Existing shareholders can sell some of their rights to pay for them (tail swallowing). Those with certificates should contact the registrar direct.
Decide not to take up the rights - if you do not take this up your allocation will be sold into the market and these may dilute your holding.

Raynor adds, "Investors who decide to take advantage of the offer should remember to take their portfolio into account and ensure they do not have too many shares in one company - especially if they take full advantage of the offering."