Rights issue

RECENT NEWS
The Economic Times  Aug 19  Comment 
The rights issue will help in implementation of the turnaround strategy and support new product launches, said a spokesperson.
The Economic Times  Aug 10  Comment 
Advisors said investors could buy bank's shares from the secondary market, apply for the bank’s rights issue and then sell its futures in September series.
The Hindu Business Line  Aug 5  Comment 
Karnataka Bank Ltd has decided to issue equity shares on a rights basis to its shareholders. The bank informed BSE that the board of directors, which met on Friday, has decided to issue equity sha...
Automotive World  Jul 29  Comment 
SSAB AB (publ) (“SSAB”) has as previously announced carried out a rights issue of class B shares. The issue of shares has resulted in changes in the number of shares and votes in SSAB as follows: Prior to the issuance of new shares, there were...
The Hindu Business Line  Jul 27  Comment 
The board of Sintex Industries will meet on Thursday to consider a rights issue to existing shareholders. The board will fix the terms and conditions of the rights issue, including price, size, enti...
The Economic Times  Jul 20  Comment 
India Infradebt has completed takeout financing of about Rs 3,000 crore and provided it to 20 infrastructure projects.
The Economic Times  Jul 20  Comment 
The rights issue, which follows a similar size issue in January this year, will increase the equity of Reliance Jio to Rs 60,000 crore from Rs 45,000 crore.
The Economic Times  Jul 19  Comment 
The rights issue, which follows a similar size issue in January this year, will increase the equity of Reliance Jio to Rs 60,000 crore from Rs 45,000 crore.
Financial Times  Jul 15  Comment 
Director tried to sell entire holding in MoPowered after rights issue tip
The Economic Times  Jul 15  Comment 
The company may raise funds through a rights issue, but there are doubts whether investors will be keen on investing, given that past returns have not been satisfactory, said those people who did not want to be identified.




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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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