Stock Right Issues

By Author: Ravsan
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A rights issue of stock is a way by which a listed company can raise additional fund from the public. A rights issue or rights offering provides a right but not the obligation to the company's existing shareholders to buy additional shares directly from the company proportionate their existing holdings, within a fixed period of time.

In a rights issue, the subscription or buying price at which the company offers each share is usually offered at a discounted rate than the prevailing market price of that stock. These rights are usually transferable, allowing the holder to sell them on the open market instantaneously.

For example, 1:3 rights issue signifies that an existing investor can buy one extra share for every three shares he/she held in the demat account.

Benefits or Pros of Rights Issue:
Companies usually offer rights when they want to raise additional money. Although many companies release rights issue for gain stockholders confidence.

The pros of a rights issue to shareholders are that shares are usually offered at a discounted price. Occasionally this discount can be quite steep; it ...
... all depends on how much the company feels it needs to encourage its shareholders to buy the rights issue.

Disadvantage or Cons of Rights Issue:
A rights issue by a well-established company may be assumed by the market as an indication that a company is struggling. This is because rights issue flood the market with more shares, lowering the company's earnings-per-share (EPS). Shareholders can become dissatisfied when their shares are diluted. But, a rights issue is meant to minimize this concern because only existing shareholders are given the chance to buy additional shares.

So what is Buy back?
It will be detailed on 25/07/2020, Saturday

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