What is an underwriting facility

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AGL Ltd has expanded its gas 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 five 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 out-clause if the market price drops below $11.45. Having regard to this information, answer these questions.

Question 1: Name the type of issue, including its characteristics, AGL Ltd is offering to its shareholders.

Question 2: What is an underwriting facility, and why might AGL use such a facility, and why might AGL use an underwriter?

Reference no: EM132606624

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