Rights issue

RECENT NEWS
The Hindu Business Line  10 hrs ago  Comment 
Tata Motors intends to utilise Rs 7,500 crore, which it plans to raise via a rights issue, to fund various activities, including introduction of more than 100 new commercial vehicles over the next...
The Straits Times  Jan 28  Comment 
January 29, 2015 1:16 AM MALAYSIAN long-haul budget carrier AirAsia X is set to announce a rights issue of shares as early as tomorrow to try and close a growing cash-flow gap, said two sources with direct knowledge of the matter.
The Hindu Business Line  Jan 28  Comment 
The rights issue of Kishore Biyani-promoted Future Retail and its DVR (differential voting rights shares) will close on Thursday. The company, which plans to raise ₹1,600 crore through the issue,...
The Hindu Business Line  Jan 28  Comment 
Tata Motors plans to raise up to Rs 7,500 crore via rights issue which will be used to invest in business expansion and reduce debt. The company’s board has given its nod for seeking shar...
The Economic Times  Jan 27  Comment 
Tata Motors will launch its biggest ever rights issue and the country’s third biggest to pay for expansion and retire debt.
The Economic Times  Jan 27  Comment 
ts regional news channels are Zee 24 Taas, 24 Ghanta, Zee Sangam, Zee Madhya Pradesh Chhattisgarh, Zee Purvaiya, Zee Marudhara, Zee Punjab Haryana Himachal and Zee Kalinga.
The Hindu Business Line  Jan 27  Comment 
The company’s consolidated debt as on September 30, 2014, stood at ₹60,773 crore
The Economic Times  Jan 26  Comment 
State Bank of Travancore, Everlon Synthetics and Zee Media Corp approached Sebi in January to raise nearly Rs 700 cr through rights issue.
The Hindu Business Line  Jan 22  Comment 
Shares of Canara Bank-promoted CanFin Homes will turn ex-rights on Friday. The housing finance major has priced the rights issue at ₹450 a share, a steep discount to the market price of ₹695.15. S...
The Straits Times  Jan 14  Comment 
January 15, 2015 1:16 AM LCD Global has axed a contentious rights issue that has been at the heart of a power play between two groups of rival 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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