Rights issue

RECENT NEWS
The Hindu Business Line  Feb 21  Comment 
Private lender South Indian Bank today said its board has finalised the dates for its rights issue and it will open on February 28. “The Capital Planning & Infusion Committee of the bank by wa...
The Hindu Business Line  Feb 20  Comment 
State-owned Canara Bank’s Rs 1,124-crore rights issue will open on March 2 and the proceeds will be utilised to fund business growth. The bank will issue over 5,42,99,105 equity shares of face valu...
The Hindu Business Line  Feb 14  Comment 
The board of Supreme Infrastructure will meet on Wedneday to finalise the issue modalities to raise ₹250 crore. The funds will be raised either through a rights issue, qualified institutional placeme...
Euromoney  Feb 2  Comment 
Bank warns on AT1 coupon if €13 bln rights issue fails; move highlights importance of capital increase.
Reuters  Feb 1  Comment 
UniCredit priced its 13 billion-euro ($14 billion)rights issue at a 38 percent discount on Wednesday as it prepared to launch Italy's biggest ever share sale in a move to rebuild...
Mondo Visione  Jan 26  Comment 
The Saudi Stock Exchange “Tadawul” announces that the enhanced framework for trading and subscribing to Rights of listed companies shall be applied in the next batch of offerings to increase capital through rights issue. The enhanced...
Reuters  Jan 25  Comment 
Royal Bank of Scotland is demanding that thousands of shareholders suing the bank over a 12 billion pound ($15 billion) cash call in 2008 prove they have appropriate insurance cover to meet the hefty risks of a trial now slated for May.
The Hindu Business Line  Jan 16  Comment 
Rights issue to follow; Q3 profit up 3.6% at ₹7,506 cr
The Hindu Business Line  Jan 12  Comment 
The board of Orient Paper & Industries on Thursday approved the rights issue schedule. Accordingly, the issue will open for subscription on January 25 and close on February 2. The company had ea...
Financial Times  Jan 12  Comment 
€13bn rights issue overwhelmingly approved by the Italian bank’s shareholders




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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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