Rights issue

RECENT NEWS
Yahoo  Apr 26  Comment 
Credit Suisse will raise around 4 billion Swiss francs through a rights offering to catch up to European rivals on capital, ditching plans to float a minority stake in its Swiss banking unit. "We ...
The Economic Times  Apr 25  Comment 
Going by the draft papers, Intellect Design Arena plans to garner up to Rs 200 crore through the rights issue.
Mondo Visione  Apr 24  Comment 
Dubai Financial Market (DFM) today announced that the rights issue of Dar Al Takaful is due to be tradable on the exchange from Tuesday, 25 April until 8 May 2017. Trading of the rights issue enables existing shareholders of the company who do not...
The Hindu Business Line  Apr 17  Comment 
Vardhman Special Steels plans to raise ₹67.85 crore by issuing 1.357 crore equity shares on rights basis. The issue, which opens for subscription on Tuesday, would be open till May 2. The company ...
The Hindu Business Line  Apr 11  Comment 
The ₹300-crore rights issue of Mahindra Lifespace Developers opens for subscription on Wednesday and will close on April 26. The company will issue up to 1.02 crore equity shares for cash at ₹292 on ...
The Hindu Business Line  Apr 10  Comment 
The board of Goa Carbon will meet on Tuesday to consider audited financial results for the quarter and year ended March 31. It will also decide on the dividend. Reliance Defence and Engineering will...
The Hindu Business Line  Apr 6  Comment 
The board of directors of Shalimar Paints will meet on Friday to consider various options for fund raising, including issue of further shares on rights basis. The Kolkata-based company, however, did...
The Hindu Business Line  Apr 4  Comment 
The recent capital-raising initiative by South Indian Bank to support business growth has received an overwhelming response from customers. The rights issue of shares for a total amount of ₹630.99 cr...
The Economic Times  Apr 4  Comment 
The Bank said it had a CRAR of 11.05 per cent as at the end of Q3 and the fresh capital raised will push up the CRAR by about 160 BPS.
The Hindu Business Line  Mar 29  Comment 
Vardhman Special Steels plans to raise ₹67.85 crore by issuing shares on rights basis. In an exchange filing, the company said it plans to offer 1.237 crore shares to shareholders and 12 lakh shares...




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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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