Rights issue

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The Hindu Business Line  Jul 25  Comment 
Shares of Intellect Design Arena will remain in focus, as its ₹199-crore rights issue opens on Wednesday. The company is offering five shares for every 22 shares held by existing shareholders as of ...
The Hindu Business Line  Jul 20  Comment 
Reliance Jio to raise ₹20,000 crore through rights issue
The Economic Times  Jul 20  Comment 
Reliance Jio on Thursday announced that it will sell shares though rights issue to raise Rs 20,000 crore.
The Hindu Business Line  Jul 5  Comment 
Shares of Intellect Design Arena will be in focus, as its board meets on Thursday to consider the rights issue price, entitlement ratio, issue opening and closing dates and fractional entitlement rat...
The Hindu Business Line  Jun 29  Comment 
Shares of Zenotech Laboratories will be in focus, as the rights issue opens for subcription on Friday. The company has announced it plans to raise about ₹120 crore from its shareholders by issuing 2....
Clusterstock  Jun 26  Comment 
A dispute over hiring in Asia between UBS and Deutsche Bank resulted in UBS being left out of a rights issue from Deutsche Bank earlier in 2017,  according to a story from the Financial Times. Tensions developed after UBS hired Deutsche Bank's...
guardian.co.uk  Jun 7  Comment 
Royal Bank of Scotland’s abrasive tone, and its seemingly freewheeling approach to racking up legal fees, have felt wrong Now we know: Royal Bank of Scotland’s rights issue in 2008 wasn’t a £12bn cash call, it was a £13bn affair. The...
Reuters  Jun 7  Comment 
A London High Court judge on Wednesday called off a trial due to begin on Wednesday in a drawn-out investor lawsuit against Royal Bank of Scotland over its 2008 rights issue that would have called disgraced former CEO Fred Goodwin to testify.




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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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