‘Rights’ or ‘Rights issue’ is an offer to existing shareholders to purchase additional new shares in the company. A Rights issue gives the shareholders a ‘right’ to participate in the offer, but there is no obligation. The Rights Issue comes at a discount to the stock’s market price and it is to be exercised at a specified date, communicated in advance. The company can raise funds and save on costs through the rights issue. A rights issue also enhances the company’s image and is a transparent process where shareholders can get shares in proportion to their existing shareholdings.
Features of a Rights Issue are:
A Rights issue is a fresh issue of shares to the existing shareholders.
A Rights issue results in dilution of equity and thus, the EPS and the Return on Equity will be negatively impacted.
Rights are offered only to those shareholders whose names exist on the record date which is the cut-off date for the Rights issue.
Subscription to the Rights issue is a voluntary option.
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