Rights issue

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newratings.com  2 hrs ago  Comment 
LONDON (dpa-AFX) - UBM Plc. (UBM.L, UBMJF.PK), an events-led marketing and communications services provider, Wednesday announced that it has proposed to buy US rival VSS-AHC Consolidated Holdings Corp., also known as Advanstar Communications, for...
WA Business News  2 hrs ago  Comment 
West African-focused gold explorer Predictive Discovery has announced a $1.85 million deal including a pro-rata non-renounceable rights issue to be fully underwritten by the company’s largest shareholder, Aurora Minerals.
Financial Times  Sep 30  Comment 
Grocer falls to 11-year low on talk advisers weighing cash call
DailyFinance  Sep 26  Comment 
OTTAWA, ONTARIO -- (Marketwired) -- 09/26/14 -- A private citizen in Ontario, Dr Richard Thain, a member of Secular Ontario and a supporter of Civil Rights in Public Education, placed an order with Pattison Outdoor Advertising for the creation of...
Finance Asia  Sep 26  Comment 
OCBC completes largest Asia ex-Japan rights issue in 2014.
Financial Times  Sep 26  Comment 
Rights issue underwriters’ fee is like a tax on shareholders
The Economic Times  Sep 26  Comment 
MTNL owns 26.68% in UTL while the balance shares are owned by Tata Communications (26.66%), TCIL (26.66%) and Nepal Ventures Pvt Ltd (20%).
The Straits Times  Sep 25  Comment 
September 26, 2014 1:14 AM OCBC shareholders will have to wait a few more days before the stock they bought in the rights issue two weeks ago is credited to their Central Depository (CDP) accounts.
guardian.co.uk  Sep 23  Comment 
New chief executive, Mark Newton-Jones, commits own money into the business, insisting chain has a future in UK Mothercares new chief executive, Mark Newton-Jones, is to invest £400,000 of his own money in the companys planned £100m rights...
Times Online  Sep 23  Comment 
Mothercare is tapping shareholders to raise £100 million in a deeply discounted rights issue to pay for a restructuring that...




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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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