What does the theoretical ex-rights price (TERP) indicate?

The theoretical ex-rights price (TERP) represents the price at which shares are expected to trade after a rights issue is completed. It is calculated to reflect the dilution of existing shares due to the new shares issued at a discounted rate during the rights offering. This price serves as a theoretical benchmark indicating where the share price will settle once the market absorbs the additional shares.

When a company issues new shares at a price lower than the current market price, the TERP takes into account both the existing shares and the new shares, adjusting for the new capital raised. This adjustment effectively shows how the rights issue affects the overall value of the company's shares in the market.

Understanding TERP is crucial because it helps shareholders assess the impact of the rights issue on their investments and aids in making informed decisions about participating in the rights offering.