Rights Issue

Key Highlights

• A rights issue is when a company gives its current shareholders the first chance to buy extra shares- often at a lower price than the market- before anyone else can.

• Rights issue process involves announcement, shareholder approval, offer period and allocation.

What is Rights Issue?

A rights issue is when a company gives its current shareholders the first chance to buy extra shares- often at a lower price than the market- before anyone else can. It’s a way for the company to raise money directly from its investors, usually based on how many shares they already own.

Purpose of a Rights Issue

• Capital Raising: Companies use the cash to pay off debts, grow their business, or cover everyday expenses.

• Shareholder Protection: It lets existing shareholders keep their share of the company by buying more at a discount.

• Strategic Growth: The funds might go toward new projects, buying other companies, or other growth ideas.

Key Features

• Discounted Price: New shares are sold cheaper than the market price, making it a tempting offer.

• Proportional Allocation: You get to buy new shares based on how many you already own.

• Voluntary Participation: You can buy the shares, sell your rights to someone else, or just skip it.

Rights Issue Process

1. Announcement: The company’s board announces the rights issue, including how many shares, the price, and the deal’s ratio.

2. Shareholder Approval: Investors usually vote to approve it at a meeting.

3. Offer Period: Shareholders get a letter with details and a window to decide whether to buy.

4. Allocation: Once the offer period ends, the new shares are added to the shareholders’ accounts.