Q&A: BT rights issue

Troubled telecoms giant British Telecom, once the pride of corporate Britain, is trying hard to cut down on its debt. A key move is a discounted shares rights issued, where the company asks shareholders to buy yet more shares.

But the fine print of the rights offer is baffling many investors. Adam Shaw of BBC's Working Lunch programme answers some key questions.

What is the deal being offered?

You can buy an extra three BT shares for every 10 you own.

Because it is a discounted offering, you pay only £3 per share instead of the current market price of about £4.38.

You have until 15 June to reply to BT if you want to take part in the rights issue.

Can you take up only part of the rights issue?

Yes. Send back your letter of allotment and ask for it to be split into two or more allotments, but you must do this by 12 June.

What if you decide not to take up the offer?

You can sell your rights to do the offer - which are now trading at £1.40 - up until 13 June.

Or you can leave them to lapse.

After 15 June all lapsed rights are put into a "Rump" and sold on 18 June. You will get the proceeds of the sale minus costs.

What do "renunciation" and "nil paid rights" mean?

Renunciation means giving up your rights issue.

Nil paid rights are your rights to buy the extra shares. They are nil paid because the rights are free to you.

What if you don't own the shares in your own name because they are in a PEP?

You need to check as soon as possible with your broker or plan provider on what options they are allowing.

Many brokers, such as TD Waterhouse, are offering the full range of options.

Some viewers who are owners of a BT PEP with the Halifax are unable to take up the rights issue within their plan. Why can't these PEP holders sell the rights themselves?

Halifax say the PEP was designed to be a low cost execution-only service so it does not allow them to deal with rights issues. They say this is made clear in the plan terms and conditions.

The Halifax will sell the nil paid rights held in the PEP and will use the proceeds to buy more BT ordinary shares.

So once you've decided on the rights issue, what happens next?

After the rights issue, BT will be split into two parts, separating the fixed line network from the mobile communications.

If you have 500 BT shares they will therefore automatically be swapped for 500 shares in each of the new companies.