Page 24 - DMGT512_FINANCIAL_INSTITUTIONS_AND_SERVICES

Unit 2: Financial Markets

Notes
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Caution A rights issue is in contrast to an initial public offering, where shares are issued to
the general public through market exchanges.

Case Study TOUAX Success of Rights Issue

OUAX is a French company and is currently Europe's no.1 in shipping containers
and river barges, and no.2 in modular buildings and freight railcars. The Group
Tprovides operating leases to customers around the world, both on its own account
and for third-party investors.
On June 24, 2009, TOUAX announced that its capital increased by waiving preferential
subscription rights but with priority for existing shareholders, launched on 18th June 2009
for a total of E17,851,519.76 (gross) through the issue of 936,596 new shares which were
subscribed in the entirety. Following partial application of the extension clause, 952,747
shares were placed or 101.72% of the issue; total proceeds were E18,159,357.82.
This rights issue has enabled the Group to strengthen its financial structure, to position
itself with advantage for possible acquisitions of tangible stock, and to grasp opportunities
thrown up by the crisis (purchase of shipping containers, modular buildings, river barges
and railcars, for hiring out on mainly long-term leases). 370,062 new shares allotted under
absolute entitlement were subscribed or 39.51% of the total number of new shares on
issue. Another 555,685 shares were applied for subject to cutting back in the event of over-
subscription, and orders for these were all filled. Another 27,000 shares had been applied
for by the general public, and following partial application of the extension clause it
proved possible to fill orders for all of these.

As the result of the rights issue, TOUAX is well placed to respond to the boom in corporate
outsourcing of non-core assets, and every day provides over 5,000 customers with quick
and flexible leasing solutions. TOUAX is now listed on Euronext in Paris - NYSE Euronext
Compartment C (ISIN Code FR0000033003), and features in the SBF 250 Index.
Questions
1. After analyzing the case, do you think all the companies that can afford, should opt
for rights issue to improve their financial status?

2. What do analyse as the 2 main advantages of the rights issue?
3. What do think can be the risks posed by rights issue?

2.2.2 Secondary Capital Market

The secondary capital market deals with those securities that are already issued in an initial
public offering in the primary market. Typically, the secondary markets are those where
previously issued securities are purchased and sold.

In the secondary capital market, the securities are generally sold by and transferred from one
investor to another. Hence, the secondary capital market needs to be highly liquid in nature.
A high transparency for the secondary market trading is also required. With the advancement of
the technology, the trading concept in secondary market has changed substantially. In the earlier
days, the investors needed to meet at fixed place in order to carry out the transactions. But now
trading in secondary capital market has become much easier for the investors.

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