Rights Issue Definition : Companies issue rights shares to existing shareholders by offering them a privilege to buy a specified number of new shares from the firm at a specified price within a specified time. These shares are offered to existing shareholders on the basis of the number of shares held by shareholders. Rights shares are often offered at a price lower than the market rates to encourage existing shareholders to accept the offer. Explanation : Companies offer additional shares, at a preice, to its shareholders to raise extra money under the secondary market offering. Companies which do not have a strong cash flow sometimes use this route to raise funds and pay off existing debts. However, companies with sound balance sheets also have rights issues to raise money to fund expansion, research and development or to purchase new companies etc. Example : A company announcing rights issue of 2:3 at Rs. 200 per share (current share price Rs. 220 per share), is issuing two new rights shares for every three held by the existing shareholders of the company at Rs. 200 per share. If the shareholder does not subscribe to the rights shares within given time period then the offer lapses.
Posted on: Thu, 15 Jan 2015 07:42:05 +0000
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