Rights issue

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The Hindu Business Line  7 hrs ago  Comment 
Tata Motors and DVR shares will remain active, as the rights issue opens for subscription next week. Shares will turn ex-rights on Monday. Market lot in F&O has been revised to 504 (50...
The Hindu Business Line  Mar 31  Comment 
The board of directors of Universal Cables on Tuesday approved a ₹65-crore rights issue. "The terms and conditions of the rights issue, including the rights entitlement ratio, the issu...
The Hindu Business Line  Mar 30  Comment 
The ₹475-crore rights issue from State Bank of Travancore, which bagan on March 17, will close on Tuesday for subscription. The Bank offered 1.185 crore shares at ₹400 a share to...
The Times of India  Mar 30  Comment 
Five global and three local investment bankers have agreed to underwrite more than half the Tata MotorsBSE 0.01 % Rs 7,500-crore rights offer, the largest that India has seen, said people with knowledge of the plan. The underwriting, to the tune...
Clusterstock  Mar 30  Comment 
ZURICH (Reuters) - Swiss travel retailer Dufry plans to raise around 3.6 billion euros ($4 billion) through a mixture of debt and equity for its planned takeover of Italy's World Duty Free . The deal will cement Dufry's position as the world's...
The Economic Times  Mar 29  Comment 
An equity infusion of Rs 7,500-crore from the rights issue will be used to reduce the debt on its standalone balance sheet.
The Times of India  Mar 26  Comment 
Investors looking to increase their exposure to the Indian automobile sector may subscribe to Tata Motors' rights issue, through which the company is planning to raise Rs 7,500 crore.
The Economic Times  Mar 25  Comment 
Brokerage houses are advising clients to subscribe to the Tata Motors' DVR rights issue as it's trading about a 40% discount to regular shares.
Reuters  Mar 25  Comment 
Telefonica Brasil SA plans to raise up to $4 billion in fresh capital through a rights issue that will be announced as early as Thursday to buy local broadband provider...
The Economic Times  Mar 25  Comment 
The problems, Tata Motors is facing with the domestic operations, should get resolved once the firm starts reporting profits on a standalone basis, Mehta says.




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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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