Offering existing shareholders extra shares at a discount is known as a rights issue, and BT's offer is the biggest ever undertaken by a UK firm. If all investors choose to buy the extra shares, BT will receive an extra 5.9bn. This will help it achieve its goal of reducing its debts by 10bn by the end of the year. The advantage for existing shareholders is that the shares are much cheaper than the current market value offered by stockbrokers or internet sites. A new investor in BT would have had to pay 568.5p for a share on Wednesday, but existing share holders are being given the chance to buy at just 300p.
All investments carry some element of risk, with share prices going up as well as down.
Many investors have already seen their savings shrink because of BT's falling share price. At the start of the new millennium, BT shares peaked at 1,513p but are now almost one third of this value. This has been due to both general market gloom in the telecom sector and concern over the debt mountain. But despite the bad performance last year, the telecoms sector is still a high growth industry, with some analysts thinking that the telecoms stocks are due to rebound. And it is possible that the spate of changes at BT will help it to turn the corner after a bad year, and see a share price recovery.