Rights issue

RECENT NEWS
guardian.co.uk  Oct 23  Comment 
Companies the size of Tesco cannot ask shareholders to dig deep for a rights issue while giving them no clear strategic plan Tesco remains in a strategic vacuum. That, rather than the accounting scandal that has grown only slightly bigger, is...
The Hindu Business Line  Oct 21  Comment 
NCC Limited has announced that the rights issue of equity shares aggregating to Rs 598.70 crore has been oversubscribed.In a statement to the BSE, AAV Ranga Raju, Managing Director o...
The Hindu Business Line  Oct 21  Comment 
Kalyanpur Cements in a communication to the BSE said that the board of directors of the company on Monday had decided not to proceed with the rights issue of equity shares and hence the proposed i...
The Hindu Business Line  Oct 20  Comment 
The board of directors of Zee Media Corporation on Monday approved raising of funds through a right issue. The company plans to mop up ₹200 crore through the rights issue to eligible shareh...
The Hindu Business Line  Oct 20  Comment 
Media conglomerate Zee Media today said its board has approved raising funds to the tune of Rs 200 crore through a rights issue. “The Board of Directors of the company at its meeting held...
The Hindu Business Line  Oct 20  Comment 
Everlon Synthetics informed the BSE that its board of directors had on October 18 approved the rights issue of equity shares for an amount not exceeding Rs 350 lakh. The board has appoint...
Reuters  Oct 19  Comment 
Spanish builder and services company FCC said on Sunday its board had approved a well-flagged capital increase of 1 billion euros ($1.3 billion) which it will use to pay down...
Channel News Asia  Oct 17  Comment 
The budget carrier says the loss was due primarily to one-off charges amounting to S$161.1 million, resulting from the subleasing of surplus aircraft and exit from Tigerair Australia.
Yahoo  Oct 16  Comment 
Just six weeks into his job, Tesco (TSCO.L) boss Dave Lewis must look at selling assets in Britain and abroad as he battles to raise funds to pull the world's No.3 grocer out of the deepest crisis in its 95-year history. Some analysts and...
The Hindu Business Line  Oct 16  Comment 
Ten listed companies raised funds worth Rs 2,796 crore via rights issue in the first half of the current financial year, Prime Database said on Thursday. This is a 29 per cent increase o...




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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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