A rights issue is an invitation to existing shareholders to purchase additional new shares in the company. This type of issue gives existing shareholders securities called rights. With the rights, the shareholder can purchase new shares at a discount to the market price on a stated future date.
Can anyone buy rights issue?
The eligible shareholders can either subscribe to the rights issue partly or fully; or can let the offer lapse by not opting to exercise their rights to purchase the additional shares; or can transfer their rights entitlements to other persons.
Is rights issue a good investment?
Pros of a rights issue
A rights issue is an opportunity for current shareholders to increase their stake in a company, for a reduced cost. In doing so, they increase their exposure to a company’s stock– which could be good or bad, depending on a company’s profit and loss statement.
When can I buy rights issue?
Companies generally offer rights when they need to raise money. Examples include when there is a need to pay off debt, purchase equipment, or acquire another company. In some cases, a company may use a rights offering to raise money when there are no other viable financing alternatives.
Rights are offered to only those shareholders whose names exist on the register of shareholders of the company on the record date. That is the cut-off date for issue of rights shares. 2 days prior to that will be the Ex-Rights date.
If a company listed in the stock exchange again issues the shares, the existing shareholders get the first right to purchase such shares. As such shares are the first right of the existing shareholders, they are called right shares. Existing shareholders are free to decide whether or not to purchase rights shares.
Yes, applicants can apply for any number of additional shares but the allotment of the same will depend on shares available for apportionment and will also be in proportion to your holding, irrespective of additional shares applied by applicants.
A rights issue is one way for a cash-strapped company to raise capital often to pay down debt. Shareholders can buy new shares at a discount for a certain period. With a rights issue, because more shares are issued to the market, the stock price is diluted and will likely go down.
Can I sell my rights issue?
The rights issue can be sold by transferring their entitlements to other interested investors in part or full if the shareholder does not wish to subscribe to his entitlements. The rights issue can be sold either through rights entitlement trading on the stock exchange or through an off-market transaction.
What are the advantages of right issue?
The right issue provides an option for the shareholders to maintain the same ownership. The number of additional share purchases allowed to an existing shareholder is always in proportion to his existing shareholding. Shareholders have the option to maintain their original proportion of share ownership.
The shareholders not willing to subscribe to their rights issue can sell their rights in the open market through the rights entitlement trading platform of the stock exchange or via off-market transaction. This is known as the renunciation of rights shares.
The company is offering one new share for every two shares held by the shareholder. The market value of the share is Rs. 240 and the company is offering one share of Rs. 120 each.
Price of rights shares.
|Market value of the shares already held by shareholder (Rs. 240 x 2 shares)||Rs. 480|
|Total shares (3 shares)||Rs. 600|
When companies issue additional shares, it increases the number of common stock being traded in the stock market. For existing investors, too many shares being issued can lead to share dilution. Share dilution occurs because the additional shares reduce the value of the existing shares for investors.
How do I renounce rights issue?
The Investors may renounce the Rights Entitlements, credited to their respective demat accounts by trading/selling them on the secondary market platform of the Stock Exchanges through a registered stock broker in the same manner as trading / selling Equity Shares of the Company.