Theoretical Ex-Rights Price (TERP) Explained for Australian Investors

When an ASX-listed company announces a rights issue, headlines often mention something called the ‘Theoretical Ex-Rights Price’ or TERP. But what does TERP actually mean for shareholders, and why should everyday Australian investors pay attention? As rights issues become more common in 2025’s capital-raising climate, understanding TERP can help you navigate dilution, value, and your next investment move.

Understanding Rights Issues and the Role of TERP

In a rights issue, a company offers existing shareholders the opportunity to buy new shares, usually at a discount to the current market price. This is a popular way for businesses to raise capital for expansion, debt reduction, or strategic investments—especially in Australia’s resource, banking, and infrastructure sectors.

However, the introduction of new shares dilutes the value of existing holdings. That’s where TERP comes in. The Theoretical Ex-Rights Price is a formulaic estimate of what the company’s share price should be immediately after the new shares are issued and begin trading ‘ex-rights’—meaning the rights to participate in the offer are no longer attached to the stock.

How is TERP calculated?

• TERP = (Value of existing shares + Value of new shares issued) / Total number of shares after the issue

This calculation assumes all rights are exercised. It offers a ‘blended’ price, factoring in the discounted issue price and the previous market price.

Why TERP Matters: Dilution, Opportunity, and Strategy

For investors, TERP is more than just an academic number—it’s a crucial benchmark for decision-making. Here’s how:

• Measuring Dilution: TERP gives a quick view of how much the value of your shares could be diluted by the new issuance. If you don’t participate in the rights issue, your ownership slice of the company shrinks, and the value per share can drop towards the TERP.
• Spotting Value or Arbitrage: If the market price after the ex-rights date is above the TERP, the rights offer may present an arbitrage opportunity. Conversely, if the price falls below TERP, it could signal weak demand or negative sentiment.
• Planning Your Move: TERP helps you assess whether to take up your rights, sell them (if they’re renounceable), or let them lapse. In 2025, with market volatility and cost-of-living pressures, many Australians are weighing up every capital allocation decision more closely.

For example, in March 2025, mining giant South32 launched a $1.2 billion rights issue at a 17% discount to its market price. The calculated TERP gave investors a clear yardstick: those who took up their rights minimised dilution, while others saw their share value adjust almost exactly in line with the TERP prediction when trading resumed.

TERP and the 2025 Australian Market: Policy and Practical Shifts

Recent regulatory updates have made rights issues more flexible and transparent in Australia. The ASX now requires clearer TERP disclosures in offer documents, and ASIC has ramped up surveillance to ensure retail shareholders aren’t disadvantaged compared to institutions.

2025 has also seen a surge in companies using accelerated non-renounceable rights issues—favoured for their speed. In these cases, retail investors must decide quickly, making TERP disclosures in offer letters more critical than ever.

• Key 2025 policy update: The ASX Listing Rules now require issuers to show their TERP calculation assumptions and to update TERP estimates if market prices shift significantly before the rights offer closes.
• Investor tip: Always check the offer booklet for the TERP and compare it to recent trading prices and your own expectations for the business. Use TERP as a tool, not a guarantee—market prices can still move unpredictably.

Conclusion: Make TERP Part of Your Investment Toolkit

Whether you’re a seasoned ASX investor or just dipping your toes into the world of capital raisings, understanding TERP is vital in 2025’s fast-moving markets. It demystifies dilution, clarifies value, and helps you make informed decisions during rights issues. Next time you see a company raising capital, check the TERP—and use it as a springboard for your own analysis.