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Rights issue

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Kenya's StanChart to raise $37 mln in rights issue
Reuters  May 24  Comment 
Standard Chartered Bank of Kenya will raise 3.2 billion shillings in a rights issue to fund its business expansion, the bank said on Thursday.
Romney Calls Failing Schools ‘Civil Rights Issue of Our Era’
New York Times  May 24  Comment 
Mitt Romney called for poor and disabled students to be able to use federal funds to attend any public, private or online school they choose.
HK bans former Fidelity fund manager
Financial Times  May 23  Comment 
Former Fidelity fund manager based in the US is banned from trading in Hong Kong after improperly placing sell orders ahead of a rights issue
Salamander Energy announce result of Rights Issue
OilVoice  May 17  Comment 
On 27 April 2012 Salamander announced a 13 for 20 fully underwritten rights issue of up to 100654935 New Ordinary Shares at 130 pence per share the quotRights Issuequot. Salamander announces
Op-Ed Contributor: A Judge’s Plea for Medical Marijuana
New York Times  May 17  Comment 
For cancer patients, marijuana is a medical and a human rights issue. New York should pass the medical marijuana bill this year.
Corporate news
The Hindu Business Line  May 16  Comment 
Bajaj Finance Ltd's board of directors today approved raising of funds through a rights issue and/or issue of equity shares and / or convertible/non-convertible securities by way of...
Rights issue, loans send White Tiger tumbling on TSX
Mining Weekly  May 14  Comment 
Shares in Canadian junior White Tiger Gold plunged more than 50% in early Toronto trade after the company announced loan deals with its two biggest shareholders, and that it would pay new stock to them expanding its issued share capital by some...
BG GROUP CEO says no plans for rights issue
Reuters  May 3  Comment 
BG Group denied it was planning a rights issue, scotching rumours that had weighed on its shares after it announced an increase in its capital expenditure budget.
Thai hypermarket chain pockets $135 million from placement
Finance Asia  May 3  Comment 
Big C Supercenter opts for a placement of new shares after postponing an $810 million rights issue late last year.
JPMorgan to boost Technicolor stake in rights issue
Reuters  May 3  Comment 
Technicolor said U.S. bank JPMorgan Chase planned to take a stake of up to 29.96 percent in the French digital video specialist to help it cut debt and push through its...




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Rights Issue

Rights Issue is a secondary capital raising strategy by the company. It gives it's stockholders an option say 1:1 (i.e. one rights issued per stock held) for the outstanding common stocks.

Ex. Say an investor has 100 shares of a company at Rs. 10 per share with a total investment of Rs. 1000. The company's brokers informs him about the option as 1:1rights issued at Rs. 8 per share. The investor exercises the option and now get's 100 shares @ Rs. 8 each. Thus his total investment is now 8*100 + 1000 = Rs. 1800 with 100+100 = 200 shares. Average price of share = 1800/200 = Rs. 9.

If all the investors avail the option than the market price of the share would come down to Rs. 9 per share and the market cap of company for a total initial outstanding common shares of 1 million (now 2 million) would be Rs. 18 million from previous market cap of Rs. 10 million.

The EPS of the company halves if the capital raised is not used as the number of shares has doubled. If the capital raised is reinvested properly and the EBIT increases than the EPS also changes accordingly.

Investor use

As used by the investor, these are an offering of shares issued at a special price by a company to its existing shareholders in proportion to their holding of old shares. [1]

Investors in common stock occasionally receive rights offerings to purchase additional common stock below the existing market price. The stock rights were probably issued to satisfy the investor’s preemptive right to maintain an existing level of ownership in the company. Rights are issued below the existing market price to encourage the exercise of the rights. The rights are separate having their own markets. [2]

From "morally correct," "just, good, fair, proper, fitting, straight," to put right" "just, righteous, wise "honest, morally upright "just claim" "in a proper manner" [1]

References

  1. ↑ ‪Wall Street words: an A to Z guide to investment terms for today's investor‬ By David Logan Scott pg318
  2. ↑ Wiley CPA Exam Review 2010: Financial Accounting and Reporting by Patrick R. Delaney and O. Ray Whittington ISBN-10: 0470453516 pg585
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