What is the rights issue?
The rights issue is a company offering existing shareholders the rights to buy more shares at a discounted rate.
This simply means the rights issue allows existing shareholders to increase their stake in the company at a discount. This gives exclusive rights to existing shareholders to buy more shares, and this is done in ratios.
Suppose a company is offering rights issue in the ratio of 1:15, which means existing shareholders will have a chance to buy an extra share at a discounted rate for every 15 shares they hold.
When does a company offer a rights issue?
The rights issue is a way for companies to raise money from their existing shareholders. Since rights issues are non-dilutive, companies prefer this over issuing normal stocks in the open market.
Discounted rates induce company owners to buy more shares, building shareholders’ confidence.
How to become eligible for a rights issue?
You can become eligible for a rights issue if you own the shares on or before the company’s record date.
Subscribe to a rights issue only if you are satisfied with the company’s financial and expansion plans.