Rights issue

RECENT NEWS
WA Business News  Sep 11  Comment 
Cardinal Resources has announced a $1.6 million placement and non-renounceable rights issue of options to raise funds for continued exploration of its West African mines.
WA Business News  Sep 11  Comment 
Gold producer AngloGold Ashanti has announced plans to separate its South African assets from its international mining assets through London-listed NewCo, whilst contemplating a rights issue to raise $2.3 billion to fund the restructure and pay...
Reuters  Sep 10  Comment 
Shares in Czech coal miner New World Resources (NWR) plunged to a record low on Wednesday after shares for a rights issue were admitted for listing as a part of its capital restructuring plan.
The Economic Times  Sep 10  Comment 
Almost all of the group's investors who voted backed the deal, which is being part-funded by a $1.6 billion rights issue.
The Hindu Business Line  Sep 1  Comment 
NCC Ltd, which is raising close to Rs 600 crore through its rights issue, has pegged the issue price at a steep discount to the prevailing market price of the scrip (face value Rs 2). How...
The Straits Times  Aug 28  Comment 
August 29, 2014 12:51 AM OCBC is offering shareholders incentives to use its ATMs to subscribe to the bank's $3.3 billion rights issue, which was announced recently.
Channel News Asia  Aug 28  Comment 
Finance Asia  Aug 28  Comment 
Property developer run by China's richest woman Yang Huiyan opts for rights issue rather than block to avoid diluting her stake.
Financial Times  Aug 28  Comment 
Shares in Chinese property developer sink after deeply discounted rights issue aimed at lowering its leverage as property slowdown deepens
Finance Asia  Aug 28  Comment 
Objektif Bersatu, the main shareholder of the Malaysian oilfield services provider, divests stake to subscribe to the rights offering.
The Hindu Business Line  Aug 25  Comment 
Funds from a rights issue and sale of coal assets will help Tata Power pare burden




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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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