A rights issue is a way by which a listed company can raise additional capital.
However, instead of going to the public,
The company gives its existing shareholders the right to subscribe to newly issued shares in proportion to their existing holdings.
Rights are given to existing shareholders on the ratio basis.
For example, 1:2 rights issue means an existing investor can buy one extra share for every two shares already held by him/her.
Usually the price at which the new shares are issued by way of rights issue is less than the prevailing market price of the stock, i.e. the shares are offered at a discount.
WHAT ARE THE OPTIONS WITH SHAREHOLDER?
Subscribe to the rights issue in full.
Ignore your rights.
Sell the rights to someone else.
WHY DOES A COMPANY GO FOR RIGHTS ISSUE?
When the company is cash strapped.
When company wants to grow, it raises fresh
WHAT IS THE EFFECT ON THE COMPANY & SHAREHOLDER?
It affects two important elements of a company-Equity capital and Market capitalisation.
The impact on shareholder depends on whether the shareholder exercises his/her rights.
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