Please explain

[sammy84]

I had a broker friend email me the following;

Implications of $4.5b underwritten DRP issuance announced by ANZ, NAB & WBC.
Based on historic participation estimates the following value of shares will be sold on-market in the coming weeks: ANZ $891m, NAB $1004m, WBC $970m. Could cause some digestion issues - look for buying opportunities during the DRP period.

Can anyone explain to me what this exactly means and how it is going to work?

 

[brettc4]

My understanding, is that those companies allow shareholders to re-invest their dividends. Sometimes at a discount and based on a historical share price (usually over a 5 day weighted average).

For those who take up the dividend reinvestment, instead of receiving the cash, they end up with more shares.

Here is where I am unsure, the two options for the company would be:
1 - Issue new shares for the value of the DRP, and assign to each shareholder. This increases the total number of shares on issue (and I believe this is how it is done).

The second option would be:
2 - Buy the shares they need on the open market, ie by x million dollars worth which would have an affect on the price.

I believe they do option 1 however, which would mean that people have additional shares, and they will do with them what they want.