What is a rights issue?

What is a rights issue?

A rights issue is a way for publicly listed companies in India to raise additional capital by offering existing shareholders the right to buy additional shares at a discounted price, in proportion to their current holdings. This method is used to raise funds for various purposes such as business expansion, debt repayment, or working capital requirements.

Key Features of a Rights Issue

  1. Offered to Existing Shareholders: Only the existing shareholders of the company as of the "record date" are eligible to participate in the rights issue.

  2. Proportionate Allotment: The number of shares offered is in proportion to the shareholder’s existing holdings (e.g., a 1:2 rights issue means one additional share can be bought for every two shares held).

  3. Offered at a Discounted Price: The issue price of the shares is usually lower than the market price to encourage shareholder participation.

  4. Not Mandatory to Subscribe: Shareholders can choose to subscribe, ignore, or even sell their rights entitlement in the stock market.

  5. Renounceable vs. Non-Renounceable Rights:
    1. Renounceable: Shareholders can trade their rights entitlement on the stock exchange if they do not wish to subscribe.
    2. Non-Renounceable: Shareholders cannot transfer their rights and must either subscribe or forfeit.

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