RSA to raise Capital with a Rights Issue

RSA insurance have hit financial difficulty and are looking to raise £773 million via rights issues in order to stabilise the group after a loss of £244 million in 2013.

The company is issuing rights to its current shareholders that will enable them to purchase more shares at a discounted price, creating an influx of capital that the insurance group will use in an attempt to stabilise their business.

This long expected cash call is the world of the new chief executive Stephen Hester and is part of plans to raise £1.6 billion, with the rest of the money raised via disposals and by scrapping dividend.

It is a 3 for 8 rights issue, meaning that for every 8 shares the current shareholders own, they can buy three more at a discounted price of 56p (rather than the current value which is 94.56p).

The storms that raged across Europe last year and early this year are partly to blame for the massive losses the insurance group suffered, as a combined £25 million was claimed. Other issues came from failing sections of the business in Ireland.

The rights issues will buoy up the capital of the company and give them room to sort the business out, but shareholders who don’t buy into the scheme could well miss out if the shares they currently hold are ‘diluted’ by the discounted shares being bought.

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