Lloyds in £13.5bn share issue

Tuesday, 24 November 2009 12:00

Lloyds Banking Group, Britain's largest mortgage lender, today set out details of a £13.5 billion rights issue.

The call for cash is the largest in UK history and will see the bank's 2.8 million private shareholders offered a 59.5% discount on further shares under the bank's plans to avoid taking part in the government's toxic assets insurance scheme.

The planned rights issue was part of a restructuring package the bank put forward at the beginning of November and subsequently approved by the European Commission last week.

Without the rights issue the bank would been left having to pay £15.6 billion to insure £260 billion in loans under the asset protection scheme, meaning a further loan from the government and the taxpayer stake increasing to 62% of the bank effectively nationalising it. Currently the government has a 43% stake in Lloyds.

The government has indicated it will take up its rights, ploughing a further £5.7 billion of taxpayer funds into the business.

Lloyds is offering shareholders 1.34 new shares for each ordinary share held amounting to 37p each compared with yesterday's closing price of 91.47p a share.

Nick Raynor, investment adviser at The Share Centre, advised shareholders to take up the deal if they could to avoid their own shareholdings being diluted. But he warned if shareholders were unable to take advantage of the deal they should sell their shares now and buy them back after Friday.

He said: "Despite the 59.5% discount there is no quick profit to be made. Shareholders should consider taking up the offer of 37p if they can afford it, to avoid the risk of having their holdings significantly diluted.

"However, if shareholders cannot afford the rights issue then we advise them to sell the shares and buy back after Friday 27 November. This way they can avoid subscribing to the rights issues' terms and be fully aware of their exposure to the company. Shareholders will vote on the plan on Thursday and have until early December to decide whether to take up their rights."

Shareholders will vote on the capital raising this week and the new shares will trade from 14 December. Meanwhile Lloyds' share price rose 1.6 per cent to 92.95p following the annoucement.

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