What are Rights Offerings?
Rights offerings (also called rights issues) are a way companies raise capital by giving existing shareholders the right to buy new shares—usually at a discounted price—before the shares are offered to the public.
🔑 What is a Rights Offering?
Shareholders receive “rights” proportional to their current holdings.
These rights allow them to buy additional shares at a fixed price, typically below market value.
Rights are usually valid for a limited time.
Rights can be:
Exercised (used to buy shares),
Sold/traded (if renounceable),
Or expire worthless if not used.
📊 Example:
You own 100 shares.
Company offers a 1-for-5 rights issue at $8/share (market price is $10).
You get 20 rights (100 ÷ 5) to buy 20 new shares at $8 each.
If you exercise all rights, you pay 20 × $8 = $160.
If you don’t want to buy, you can sell the rights (if allowed) or let them expire.
✅ Why Companies Use Rights Offerings:
Reason | Explanation |
Raise capital for growth, debt reduction, or acquisitions. | Cheaper than loans. |
Gives existing shareholders a chance to maintain ownership percentage (avoid dilution). | Protects shareholder value. |
⚠️ Considerations for Investors:
Dilution: Not exercising rights means your ownership % decreases.
Short-term price impact: Stock price often drops after the announcement due to dilution.
Decision timing: You must act within the rights expiration period.
📘 Types of Rights Offerings:
Type | Description |
Renounceable | Rights can be sold or transferred. |
Non-renounceable | Rights cannot be sold; must be exercised or lost. |
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