HBOS seeks rights issue backing

Halifax Bank of Scotland is seeking the backing of its 2 million private shareholders to back a £4 billion rights issue.

The legion of smaller investors - gained when the former Halifax building society demutualised in 1997 - owns around 27 per cent of the group with around 1 billion shares.

The UK's biggest mortgage lender has sent out a circular with the background and the full timetable for the cash call, which will cost the average investor - holding 374 shares - £409.75p to take up the 149 new shares they will be entitled to.

Around 1.4 million people who do not have share certificates - instead holding their stock in a shareholder nominee account or a share ISA - will receive a form of election on or around June 20 telling them how many new shares they are eligible to.

Assuming shareholders approve the move at a general meeting in Edinburgh on June 26, investors must return the forms by July 11 if they wish to take part in the rights issue.

Shareholders holding certificates - around 640,000 - will receive a "provisional allotment letter" after the general meeting, again detailing the new shares they are entitled to. They have until July 18 to take part.

The "nil-paid rights" - the right to buy the new discounted shares - will begin trading on the London Stock Exchange from June 27.

Investors will be able use a free dealing service from HBOS to sell their rights if they do not wish to take part in the issue, thus diluting their stake in the bank.

They can also "tail swallow" - selling enough of their rights so they can take up the remainder of their new shares without spending extra cash - although certificate holders will be unable to do this for free due to "logistical reasons".

The bank will sell rights on behalf of those investors who choose to do nothing. They will receive a cheque during August.

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