What Is a Rights Issue?

A rights issue is a way for a listed company to raise capital by offering existing shareholders the right to buy additional shares, usually at a discount to the market price, in proportion to their current holding.

How it works

You receive rights entitlements based on a ratio — say 1:5 means one new share for every five you hold. The new shares are offered at a set price below the market rate. You can act on this within a limited window.

Your three choices

• Subscribe — buy the new shares at the discounted price to maintain (or increase) your stake.
• Sell the rights — rights entitlements are often tradable on the exchange, so you can sell them to someone else if you don’t want to subscribe.
• Let them lapse — do nothing, and they expire worthless. This also dilutes your ownership, since others’ shares increase.

Rights issue vs other routes

Unlike an FPO (open to the public) or a preferential allotment (to select investors), a rights issue is aimed at current shareholders first. Companies use it to fund growth, cut debt or shore up the balance sheet.

What to consider

Judge why the company is raising money and whether the use is sound — raising capital to cut heavy debt is different from funding growth. A discount alone isn’t a reason to subscribe. Education only, not a recommendation.