Rights issue

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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...
Wall Street Journal  Oct 16  Comment 
Agile Property Holdings Ltd. said it plans to raise more than US$200 million in a rights issue ahead of a looming December loan deadline, even as it said a second executive had been in touch with Chinese authorities and was now unreachable.
The Hindu Business Line  Oct 15  Comment 
Kishore Biyani-promoted Future Retail has received market regulator SEBI’s approval to raise up to Rs 1,600 crore through rights issue. The company had filed its application with the Secu...
WA Business News  Oct 15  Comment 
Kasbah Resources has completed its $8.3 million rights issue to fund the company’s Achmmach tin project in Morocco.
WA Business News  Oct 14  Comment 
Red Mountain Mining has withdrawn its $1.4 million rights issue after underwriter Patersons Securities terminated the agreement, as the company’s share price closed lower than the offer price of 0.8 cents for three days.
Reuters  Oct 13  Comment 
Prince Alwaleed bin Talal plans to subscribe to the 351 million-euro ($445 million) rights issue unveiled last week by Euro Disney , the cash-strapped operator of Disneyland Paris,...
newratings.com  Oct 13  Comment 
mybet Holding SE resolves capital increase by way of rights issue with additional subscription option mybet Holding SE / Key word(s): Capital Increase 13.10.2014 17:23 Dissemination of an Ad hoc announcement according to § 15 WpHG,...




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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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