Rights issue

RECENT NEWS
The Economic Times  Jul 2  Comment 
IL&FS Engineering and Construction Company today said it will raise Rs 500 crore through various avenues, including QIP route and rights issue.
Mondo Visione  Jun 29  Comment 
Subsequent to the CMA's announcement on 19/04/2015 regarding companies applying to increase their capital through rights issue offering, the CMA would like to clarify that Alinma Tokio Marine Company's application to increase its share capital...
The Economic Times  Jun 27  Comment 
The bank would look at raising the capital through a public share issue, or a rights issue, or even a private placement, among other options.
The Hindu Business Line  Jun 22  Comment 
Shares of Vascon Engineers will remain in focus, as the stock turns ex-date on Tuesday after a ₹100-crore rights issue. The company had offered 14 rights equity shares for every 19 share...
The Straits Times  Jun 19  Comment 
June 20, 2015 1:12 AM JARDINE Cycle & Carriage (C&C) is raising US$772 million (S$1 billion) from a one-for-nine rights issue to help fund its purchase of a 24.9 per cent stake in Siam City Cement Public Company.
The Straits Times  Jun 15  Comment 
June 16, 2015 2:14 AM OIL exploration and production firm KrisEnergy will raise $165.6 million through a rights issue, the company said yesterday.
Channel News Asia  Jun 15  Comment 
To support KrisEnergy, Keppel has undertaken to subscribe for its full entitlement, which is about 31.3 per cent of the rights issue. 
The Hindu Business Line  Jun 12  Comment 
Shares of Vascon Engineers will remain in focus on Monday, as its board of directors meets on Saturday to consider a rights issue. Details of the proposed rights issue, including the structure, is...
Mondo Visione  Jun 9  Comment 
Bursa Malaysia Berhad (“Bursa Malaysia” or “The Exchange”) and Affin Bank Berhad (“AFFINBANK”) today signed an agreement to offer the market an electronic subscription and payment service for the application of Rights Issue, otherwise...
Financial Times  Jun 9  Comment 




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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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