Rights issue
Also called: rights shares, rights entitlement
An offer to existing shareholders to buy new shares in proportion to their holding, usually at a price below the market price.
A rights issue raises new money for the company. Each shareholder can take up the new shares, sell the entitlement to someone else, or do nothing. Because the new shares are offered at a discount, doing nothing loses value and reduces the shareholder's percentage of the company.
Example
In a 1-for-4 issue at ₹160 when the share trades at ₹200, the theoretical price afterwards is (4 × 200 + 160) ÷ 5 = ₹192.
Learn more in these lessons
- Dividends, splits, bonus shares and other corporate actionsWhat happens to my shares in a split, bonus issue or rights issue?
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