What is a Rights Issue?
What is a Rights issue ? Find a clear answer in this FAQ by 021 Trade.
A rights issue occurs when a company needs to raise additional capital while ensuring that the voting rights of existing shareholders remain proportionate. In this process, the company offers its current shareholders the opportunity to purchase additional shares at a discounted price, usually lower than the prevailing market rate.
This allows shareholders to buy shares directly from the company, rather than from the secondary market. The number of shares a shareholder is entitled to purchase depends on their existing shareholding.
Rights issues are commonly used by companies to fund growth initiatives, such as expanding operations, reducing debt, or acquiring other businesses. While issuing new shares may lead to dilution of existing share value, the expected growth of the company can potentially result in higher capital gains in the future.
Overall, a rights issue is an effective way for a company to raise funds without bringing in new external investors, while giving existing shareholders the opportunity to maintain their ownership percentage.
