What is a Rights Issue?
A Rights Issue is a Corporate Action where a company offers its shareholders the opportunity to purchase further shares:
- In proportion to their existing holding (e.g. 3 new shares for every 10 held)
- For cash (e.g. to fund a takeover bid)
- A a price set by the company
- (The price is set at a discount to the price of the Ordinary Shares to persuade shareholders to buy)
Example:
Company has one million 25p shares in issue and the current market price is 200p. It makes a rights issue of one new share for every four held at 150p.
To work out how much the rights issue will dilute the Ordinary Share price by:
- 4 shares - original market value
- 1 share - cost
- 5 shares - worth
Therefore:
- Theoretical ex-rights price - Each share is worth 9.50 ÷ 5 or £1.90
- Theoretical nil paid price - Ex-rights price less the subscription price, i.e. £1.90 - £1.50 = 40p
Key Dates
Record Date
When: Dependant on Event
The date used by the Registrar to determine who they contact/pay.
Ex-Date
When: Dependant on Event
You must be a beneficial holder of the Ordinary shares at the close of business on the working day prior to the Ex-Entitlement Date.
Any person buying the ordinary shares on or after the Ex-Date will be purchasing without Rights. Similarly any person who sells their shares prior to the Ex-Date will not be eligible.
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