MGT401 GDB 2 Spring 2011 idea Solution June 2011

[Vuhelper]

Wateen Telecom (Pvt.) Ltd. is a fully owned subsidiary of Abu Dhabi Group. It is recognized as one of the fastest growing ISPs (Internet Service Providers) in Pakistan from last two to three years. It has authorized capital of 25 million shares, while issued capital of 10 million shares at par value of Rs. 10 each with the same market price in year 2010. As one of the fastest growing ISPs, it needs large amount of finance to fund its telecommunication infrastructure in upcoming years.

At starting of year 2011, management and existing shareholders mutually decided in AGM (Annual General Meeting) to raise all finance through equity financing due to high cost of borrowing in Pakistan in order to meet its financial needs in telecommunication infrastructure development. It is also decided in the meeting that company will gather the finance by issuing further 10 million new shares at par value. It will issue 6 million shares to its current shareholders while remaining 4 million shares will be issued to general public at large in the open market.

Requirements
You are required to mention what specific term for the shares will be used when these will be issued to:

Current Shareholders:_____________
General Public:__________________

[Vuhelper]

Current Shareholders:_____________ Right Issue

General Public:__________________ Further Issue

Right Issue

New stock (share) issue offered to existing stockholders (shareholders) in proportion to their current stock/shareholding, for a specified period and at a specified (usually discounted) price. Its objective is to afford them the opportunity to maintain their percentage of ownership of the firm. See also scrip issue.

Further Issue

Where the new shares are offered to people other than current share holders, in case of public companies, subject to approval of Federal Govt