There were some sudden noises made of Rights issue recently due to the changes brought in its process. Let’s understand it from the base.
What’s a Rights Issue?
It is one of the ways a Company rewards its shareholders by offering additional shares at a discounted price
To whom is this awarded?
It is offered to those who already hold the shares on a particular date (called Record date) as announced by the Company
How are the rights shares differentiated from normal shares?
The rights shares carry a different ISIN number and the normal shares have different ISIN nos
How are the shares offered?
The eligible shareholders get Rights shares or the Rights Entitlement credited to their demat account
What does the share holder need to do?
Well, they have 3 choices,
- Accept the offer by paying the money called by the Company. This is called subscribing to the Rights Issue
- Renounce the offer by selling them in the market. Rights shares trade with different symbol at at discounted price. This is called Renouncing the Right
- Do nothing.
What will happen in each of these cases?
In the first option where you pay the money as demanded by the offering Company, you become the owner of the shares. In the second instance, you transfer the rights to hold the shares to another party by selling the shares and hence, you no more have any rights on it. In the third option, the Rights Entitlement, which are neither subscribed nor sold or in other words renounced before issue closing time, stands lapsed
When will a holder fully own the shares?
To become the owner of the shares, the holder of Rights Entitlement should subscribe for the Rights Issue and pay the money called for by the Company.
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