Rights issue

RECENT NEWS
The Economic Times  Apr 18  Comment 
MCX Stock Exchange, facing legal battles, today extended the subscription period for its rights issue till April 30, citing a request from banks.
New York Times  Apr 11  Comment 
Former President George W. Bush said both parties should come together to address the problem as the central civil rights issue of the modern era.
The Economic Times  Apr 10  Comment 
IT services company Ramco Systems today said it aims to raise over Rs 123 crore by offering shares to existing investors.
Reuters  Apr 10  Comment 
Chinese conglomerate Fosun International Ltd said it is planning a rights issue worth up to HK$5.18 billion ($668.1 million), seeking capital for refinancing and for general...
Reuters  Apr 9  Comment 
Egypt's Citadel Capital has finalized its equity capital increase to a total of 8 billion Egyptian pounds ($1.15 billion) with its 3.64 billion-pound ($522 million) rights issue...
The Economic Times  Apr 9  Comment 
Infrastructure firm NCC Ltd said its Board of Directors has approved raising up to Rs 650 crore through Rights Issue of equity shares.
The Economic Times  Apr 8  Comment 
Under the rights issue, shares are issued to existing investors of an entity as per their holding at pre-determined price and ratio.
The Hindu Business Line  Apr 7  Comment 
The NCC scrip may see market attention, as its board is meeting on Wednesday to consider a rights issue. As the company did not disclose any other details, price and quantum of the issue w...
Reuters  Apr 6  Comment 
French cable company Numericable will launch a rights issue worth up to 4.7 billion euros ($6.44 billion) to help fund its acquisition of Vivendi unit SFR, Numericable said on...
Financial Times  Apr 3  Comment 
There is a racial subtext to the American healthcare debate. Most of those without insurance are Hispanic, black or otherwise non-white




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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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