RBS launches £12bn rights issue

by Gill Montia

Story link: RBS launches £12bn rights issue

Royal Bank of Scotland (RBS) has launched the biggest rights issue in UK corporate history.

The bank is raising £12 billion to underpin its balance sheet following writedowns of £5.9 billion from investments in mortgaged-backed securities and other debt related to the US sub-prime mortgage crisis.

Existing shareholders will be offered 11 new shares for every 18 shares held, at a heavily discounted rate of 200p a share (Monday’s closing share price was 372½p).

RBS also plans to raise £4 billion through the sale of assets, which could include its Direct Line and Churchill insurance businesses.

The bank is already in the process of selling its Angel Trains rolling-stock business, which it put up for auction last autumn.

The position of RBS’s chief executive, Sir Fred Goodwin, could now be in jeopardy because he has consistently refuted suggestions that the bank would need to raise fresh capital.

According to a statement, the rights issue is the results of developments that took place during March when the economic outlook and conditions on the credit markets deteriorated.

An interim dividend will be paid in shares, rather than cash, and RBS expects the full year dividend for 2008 to be below earlier expectations.