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Rights Issue and its relevance to shareholders explained with examples

  1. Stock Markets Basic
    1. Invest:3 benefits of investing for your future
    2. Types of Investment Diversification asset classes
    3. What is the share market? What Does It Do and How Does It Work with examples
    4. SEBI What is Securities and Exchange Board of India
    5. Stock Broker Financial Intermediaries or Market Intermediaries role in share market
    6. Depository and types of Depository Participants in India
    7. ICCL, NSE Clearing Limited and Bank’s role as Financial intermediary
    8. Angel Investors What are their roles with examples
    9. Venture Capitalist Who Are They and What Do They Do
    10. CAPEX Understanding Capital Expenditure with examples
    11. Private Equity Explained Understanding PE With Examples
    12. Initial Public Offering (IPO): What It Is and How It Works
    13. Launch IPO Why Do Companies Go Public
    14. IPO process how Initial Public Offering works in India
    15. What is IPO Key Terms Related to Initial Public Offering
    16. What is the share market?
    17. Share price understanding how does prices increase or decrease with examples
    18. Share trading: How Does It Work? with examples
    19. Types of traders in share market
    20. Market Index How Indexing Works, Types, and Examples in share market
    21. Share market indices importance and key terms
    22. Index construction methodology
    23. Share market terminology
    24. Share market terminology for beginners
    25. How to Trade Shares for Beginners
    26. Clearing and settlement process in the Indian Share market
    27. Stock selling learn What happens when you sell a stock
    28. Corporate actions in share market and impact on prices
    29. Bonus Issue of Shares Explained and How They Work
    30. Stock Split and Buyback of Shares What you need to know
    31. Monetary Policy by RBI Repo Rate, reverse repo rate, Cash reserve
    32. Inflation and IIP explained with examples
    33. Purchasing Managers Index, Budget, Corporate Earnings Announcement and Non-Financial events
    34. Stock market basics for beginners
    35. Offer for Sale and Follow-on Public Offer explained with examples
    36. Rights Issue and its relevance to shareholders explained with examples
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Marketopedia / Stock Markets Basic / Rights Issue and its relevance to shareholders explained with examples

IPO 

An Initial Public Offering marks the debut of a company in the share markets. The promoters of the business will typically make a portion of its shares available to investors. 

The main motivation for going public is to gain capital to finance growth initiatives or allow early investors to cash out. After the IPO goes on the exchange and begins trading, promoters may require more money. In such a scenario, they have three choices: Rights Issue, Offer for Sale and Follow-on Public Offer.

Rights Issue

Promoters can opt to generate additional capital from their existing investors by offering them additional shares at an affordable price (usually less than the Market Price). Generally, these new shares are offered in proportion to the quantity of shares the shareholder currently possesses. 

To explain further, a 1:4 Rights Issue would mean that for every 4 held shares, 1 more will be provided. Though this appears attractive, it restricts the company from raising finances from a limited group of investors which already possess its stocks and are likely unwilling to make any extra investments. Moreover, such issues have a dilutive outcome on the value of the earlier owned shares.

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