MNO is listed on its local stock exchange.  It has a high level of gearing compared to the industry average as a result of rapid expansion funded by…

A placing, also known as a private placement, is the sale of new shares directly to a select group of investors, typically large financial institutions. By issuing a significant block of new shares to these entities, their collective ownership stake in the company increases. Consequently, the proportional ownership of existing shareholders, who are not offered the shares in a placing, is diluted. This method is distinct from a rights issue, where all existing shareholders are given the opportunity to purchase new shares, thereby allowing them to maintain their proportional stake.

A. Rights issues are often underwritten to guarantee the capital is raised, as there is a significant risk that shareholders may not take up their rights, especially in volatile markets.

B. The administration costs of a placing are typically lower than a rights issue because it involves fewer investors and less extensive regulatory and communication requirements.

D. A placing and a rights issue are alternative methods for raising equity. There is no rule that one must precede the other; the choice depends on the company's objectives.

1. Brealey

R. A.

Myers

S. C.

& Allen

F. (2020). Principles of Corporate Finance (13th ed.). McGraw-Hill Education. In Chapter 15

Section 15.2

the text describes private placements as "sales of securities to a limited number of institutional investors

" which by definition concentrates ownership among that group.

2. Hillier

D.

Ross

S.

Westerfield

R.

Jaffe

J.

& Jordan

B. (2016). Corporate Finance (3rd European ed.). McGraw-Hill. Chapter 16

"Raising Capital

" contrasts the two methods

noting that placings are cheaper and quicker than rights issues due to the limited number of parties involved

while rights issues protect existing shareholders from dilution.

3. Eckbo

B. E.

& Masulis

R. W. (1992). The choice between private placements and rights issues by seasoned issuers. Journal of Financial Economics

31(3)

267-300. This study analyzes the characteristics of firms choosing each method

implicitly confirming that placements involve a concentrated group of new

large investors. https://doi.org/10.1016/0304-405X(92)90018-M