What Is a Rights Offering?

Rights issue refers to the issuance of new shares by a listed company for existing shareholders to subscribe, and shareholders can subscribe for new shares based on their shareholding ratio.

Rights issue

Right!

Rights issue means

Rights issue means that the company issues new shares for existing shareholders to subscribe according to the shareholding ratio. Rights issue means that a listed company issues new shares for existing shareholders to subscribe. If shareholders do not participate in the rights issue, their interests will be diluted.

For example, a company's rights issue in the form of two rights issue means that the original shareholders have the right to purchase one new share by holding every two old shares.

"Rights issue" means that large shareholders demand money from small shareholders, that is, it stipulates that small shareholders need to use as much money to subscribe for more new shares. Rights issues have a ex-date, on this day " The "right issue" will be deducted from the stock price, so the stock price will definitely fall! And stocks purchased on or after this day do not require rights issue, and stocks purchased before the ex-date will be entitled to "right issues". If you do not want to issue rights, you can sell the rights issue to others Go to the rights issue, but if the share price is higher than the market price, many people will not buy these rights, so the stock price will fall again. But the rights issue is not rigid, so even if you cannot sell the rights, you can No rights issue. If the share price is lower than the market price, many small shareholders will be happy to issue rights; in addition to the required number of rights shares, you can apply for additional rights, but it may not be distributed to you.

For example, companies that have issued 100 shares play rights issues, 10 get 1 free

Before

100/100 = 1% of the company per share

After offering

100/110 = 0.9091 per company

Rights Issue is the issue of new shares by the company, allowing existing shareholders to subscribe for new shares in proportion to their shareholding. Whenever a listed company needs funds, if it intends to raise funds to repay debts, expand its business, conduct mergers and acquisitions, and enrich its capital, it can raise rights and raise funds to existing shareholders. In order to attract shareholders' rights, the price of the rights is often lower than the current price of the shares.

The HSBC rights issue will help strengthen its capital position. After the rights issue, the bank's capital ratio will increase by 150 basis points. At the end of 2008, the core equity level 1 ratio will increase to 8.5%, and the level 1 ratio will increase to 9.8%.

The reason for the company's rights issue to raise funds is usually to increase investment or reduce debt. If the company has good reasons for a rights issue, such as a new investment, and the new investment is expected to increase the company's profit, then the rights issue may not be a bad thing, because after the rights issue, the company's profit will increase due to the new investment. Support for the stock price has even increased it.

However, retail investors generally view the rights issue as a negative corporate action because it requires small shareholders to make additional investments, but not all shareholders are willing to make more investments. Therefore, when a company announces a rights issue, existing shareholders will receive rights rights called pre-emption rights. If shareholders do not want to issue rights, they can waive this right or sell the rights in the market to cash out. Such rights can be bought and sold on the Stock Exchange, but have a short lifespan, usually only one to two weeks. In general, in order to attract shareholders' rights issue, the company will reduce the price of the rights issue. However, this will put pressure on the stock price, and these new shares will dilute the company's earnings per share, no wonder that retail investors generally do not like rights issues.