By Jason Fittler
RIO is currently undertaking a rights issue consisting of 21 New Rio Tinto Limited Shares offered for every 40 existing shares at A$28.29 per share to raise approximately US$15.2 billion of gross proceeds.
At time of writing, RIO was trading on market for $77 per share. If you are a holder of RIO shares, you need to take some action.
The shares are at a deep discount to market price as such you will be able to make a nice profit on this arbitrage or you can increase your exposure to the company while at the same time reduce your overall cost of the shares.
This is one of those opportunities when small share holders can make a nice little profit either through selling the amount of shares equal to your entitlement from existing holding on market and buying back through the rights issue.
This would leave you will the same amount of shares and considerable cash in your pocket.
Alternatively, you could take up your full entitlement and effectively reduce your cost base.
The fact is, if you hold RIO shares you must take some action. Beware of the traps; make sure you check the ex-entitlement dates and closing date before you do anything.
If unsure, it is best to consult your broker before taking any action.
If you would like more information on RIO Tinto Limited (RIO) please give us a call on (07) 4771 4577.