Question
8. Santos Limited has expanded its exploration program and has decided to fund the expansion through the issue of additional ordinary shares to its existing
8. Santos Limited has expanded its exploration program and has decided to fund the expansion through the issue of additional ordinary shares to its existing shareholders on a pro-rata basis of one new share for each 5 shares held. The issue price is $11.75 per share and the current market price is $11.95. The financial advisers to the corporation have recommended the use of an underwriting facility. The board of directors has noted that the underwriting facility has an outclause if the market price drops below $11.45. Having regard to this information, answer these questions. (a) What type of issue is Santos Limited making to its shareholders? (b) What is an underwriting facility, and why might Santos use such a facility? (c) Why might Santos use an underwriter?
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