In an attempt to keep the Government from gaining a majority share in the company, Lloyds has undergone a UK record-breaking rights issue and offered the shares at nearly a 40% discount. The shares, which should be priced at about 60p are being offered at 37p.

The previous largest rights issue was the £12.5 billion cash raising by HSBC earlier this year after admitting its purchase of US Household International had been a disaster.

Lloyds bank is still making a loss but expects improvements next year. The main problems stem from bad debts inherited when they took on the crippled HBOS last year. Without action Lloyds would have to pay the government some £15.6 billion to insure all the bad debts via the government’s ‘Asset Protection Scheme’.

This rights issue is part of a drive to amass £22.5 billion so that it can avoid having to avail itself of the Government’s toxic asset insurance scheme. The scheme would be very expensive for Lloyds and end up with the government, which currently owns 42% of Lloyds, owning some 62%. Compare this to RBS, which is embroiled in the APS, and will end up being over 80% publicly owned.

The government is expected to exercise its rights under the issue and invest another £5.7 billion of taxpayers’ money in the bank. But £2 billion will be paid back to pay for the government’s ‘implicit protection’.

The rest of the money has been raised by debt conversion offers, which have been oversubscribed. This has been welcomed by Lloyds.

Lloyds has a massive private shareholding community that on average hold in the region of 740 shares. That gives them the right to purchase 991 shares at a cost of £366.67p. if they do not exercise the right, their shareholding percentage will diminish as a result.

It will be interesting to see if the private investors take up their rights.

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Tags: banking, britain's largest rights issue, Business and Finance, Lloyds, News, rights issue

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