Key Takeaways. A rights issue is an invitation to existing shareholders to purchase additional new shares in the company. In a rights offering, each shareholder receives the right to purchase a pro-rata allocation of additional shares at a specific price and within a specific period (usually 16 to 30 days).
Advantages of Right Issue
Right issue of shares is an opportunity for current shareholders to increase their stake in a company at a reduced cost. It is cheaper than a public share issue. The company saves a significant amount of money, such as underwriting fees, advertisement cost and so on.
Why Issue a Rights Offering? Companies most commonly issue a rights offering to raise additional capital. A company may need extra capital to meet its current financial obligations. Troubled companies typically use rights issues to pay down debt, especially when they are unable to borrow more money.
It is very similar to an IPO application.
- Investors can visit their brokerage account online, go to the ASBA services option.
- Select the IPO/FPO/BUYBACK option that will show all the Rights issues available.
- Fill in the quantity you want to buy and submit the application.
- Check the terms and conditions box.
Example of a Rights Issue
- Investor’s Portfolio Value (before rights issue) = 100 shares x $10 = $ 1,000.
- Number of right shares to be received = (100 x 2/5) = 40.
- Price paid to buy rights shares = 40 shares x $6 = $ 240.
- Total number of shares after exercising rights issue = 100 + 40 = 140.
Is it good to buy rights issue?
The good news is that the shares will be cheaper than the current market rate. When a company offers new shares via a rights issue, it is usually at a discount to the current market rate. What this means is that if the market price of the share is Rs 100, the company may offer the shares for Rs 90.
8. Are rights issue good for shareholders? The rights issue is good for shareholders as it provides an opportunity for the shareholders to increase the stake in a company at a reduced price compared to the current market price.
Is a rights offering good?
In the current economic environment, where companies’ share prices are significantly depressed and outside financing is hard to come by, a rights offering provides a viable way of attracting investment from existing shareholders.
Yes dividend is also payable on all equity shares received through right shares or bonus shares.
What is the advantage of right issue?
The right issue incurs low cost
A company can initiate the rights issue process to its existing shareholders at indigent times without incurring underwriting fees. The company also saves money that is spent on advertising, underwriting fee, etc.
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.