What is right issue or RI?

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A public company that wants to raise capital can opt for a Public Issue or a Rights Issue. Oftentimes they opt for latter, followed by former. In a rights issue, existing shareholders have the right to buy a specified number of new shares of the firm at a specified price within a specified time. Usually this price is below market price. The idea is to reward existing shareholders with an investment opportunity, which is perceived to be attractive.

Long-term investors can purchase additional shares in right issue at lower than current market price and hold the stocks.

From short-term investment prospective, one can sell the rights entitlement.

Alternatively, the rights may be allowed to lapse.

If a company is not in growth phase, rights issue tends to lower earnings per share and dividend yield. In such a scenario, offering rights (or public issue, for that matter) may not be a prudent course of action.

Declaration date This is the date on which the board of directors announces to shareholders, and the market as a whole, that the company will pay a dividend, the quntum of dividend per share and the date on which it will be paid. Declared dividend is an obligation for a company.

Record Date is the date set by the company to determine, from the records, who are the holders of shares/bonds of the company. Holders of securities on that date, are entitled to dividend/interest. An investor must be listed as a holder of record to ensure the right of a dividend payout.

Ex Date is the date when existing shareholders are entitled to get dividends/ Rights Issue shares. If you buy a dividend paying stock one day before the ex-dividend you will still get the dividend, but if you buy on the ex-dividend date, you won't get the dividend. On its ex-dividend date, the price of a stock usually falls by an amount approximately equal to the value of the upcoming dividend. Conversely, if the price stays same on that date, the share price is said to have risen by an amount equal to declared dividend.

Date of payment (payable date) is the date on which the company mails out dividends to holders of record.

The Investor: Current Shares 100@100rs=10000, right issue declare as 1:1 offer price is Rs 50, 100@50=5000 so Total Purchase price 200@150=15000Rs At the day of Ex Date the share price will be rs75. So First day Investor will not get any profit.

The Company: Company has 100,000,000 Shares @ 100rs= Capitalization of the stock is 10,000,000,000 Rs. After Right issue Company Has capitalization of the stock (100,000,000 Shares @ 100 rs) + (100,000,000 Shares @ 50 rs ) = 15,000,000,000 If the company were to do nothing with the raised money, its Earnings per share (EPS) would be reduced by half. However, if the equity raised by the company is reinvested (e.g. to acquire another company), the EPS may be impacted depending upon the outcome of the reinvestment.

answered


12 Comments

Peerzada shameem
12. Peerzada shameem  Oct 22, 2011 09:25 I Like It. | I Don't Like It. | Report Abuse Reply
The arragment where by the securities are sold in pry market by issuing rights to the existing shareholders is known as right issue.
shailesh
11. shailesh  Oct 7, 2011 19:27 I Like It. | I Don't Like It. | Report Abuse Reply
RIGHT ISSUE IS SHARES ISSUED BY J.S.COMP. TO THE EXISTING SHARE HOLDERS AT LESS PRICES COMPARED TO MARKET VALUE IN PROPORTION TO THEIR PREVIOUS HOLDING AND IF THAT TIME HE DON'T HAVE MONEY OR DON'T WANT TO BUY FOR ANY REASON THEN HE CAN SELL HIS RIGHT TO ANY OTHER PERSON FOR BUYING THOSE SHARES AND HE WILL CHARGE FOR HIS RIGHT (BECAUSE HE IS GETTING AT LESS PRICE THAN MARKET RATE SO HE CAN ENJOY THE DIFFERENCE BETWEEN MARKET RATE AND PRICE FOR WHICH COMPANY OFFERING FOR HIM)
ravi kumar singh
10. ravi kumar singh  Nov 1, 2009 00:38 I Like It. | I Don't Like It. | Report Abuse Reply
Right issue is nothing but a short of right enjoyed by the existing shareholder.According to this right if the company is going to issue the share then it has to give first preference to the existing shareholder, and if they don't take den only company can go for public.The rationale for doing it to protect the shareholder, however the condition may be change when when company is incurring loss.
clarice
9. clarice  Sep 13, 2009 02:32 I Like It. | I Don't Like It. | Report Abuse Reply
when the company going for the further issue then it give the first preferences to the existing shareholder
Nita
8. Nita  Jul 6, 2009 17:24 I Like It. | I Don't Like It. | Report Abuse Reply
Right issue is one in which company gives issue to exsisting share holder in proportion to number of shares held by them ...by this comapmny try to increase nu,ber of share in market for trading
Sainath
7. Sainath  Mar 19, 2009 18:23 I Like It. | I Don't Like It. | Report Abuse Reply
A security giving stockholders entitlement to purchase new shares issued by the corporation at a predetermined price (normally less than the current market price) in proportion to the number of shares already owned. Rights are issued only for a short period of time, after which they expire.
devi
6. devi  Mar 3, 2009 17:18 I Like It. | I Don't Like It. | Report Abuse Reply
right issue is nothing but issuing the shares to the existing share holders first incase they didnot accept the proposal then there is a right to the compny to issue to general public only in existing share holders default.
Moksha
5. Moksha  Jan 16, 2009 09:41 I Like It. | I Don't Like It. | Report Abuse Reply
Right issue means the company offers additional shares to the existing shareholdes of the co. The exesting shareholders are offered the right to subscribe to new shares in the propotion to the number of share they alredy hold.
Dhavan shah
4. Dhavan shah  Dec 18, 2008 10:50 I Like It. | I Don't Like It. | Report Abuse Reply
Right issue means company issues shares to the current shareholder at price which is less than the current market price.
sanjay kumar sahu
3. sanjay kumar sahu  Apr 10, 2008 15:13 I Like It. | I Don't Like It. | Report Abuse Reply
when the company issue more share, first it offers these share to the existing share holders this is called as right issue.
ASHFAQ
2. ASHFAQ  Feb 10, 2008 15:17 I Like It. | I Don't Like It. | Report Abuse Reply
RIGHT SHARE : THE FINANCIAL INSTITUTIONS/COMPANIES THROUGH WHICH THE SHARES ARE ISSUED TO THE PUBLIC/INVESTORS BY IPO'S HAS THE RIGHT TO TAKE OVER THE REMAINING SHARES WHICH ARE NOT SOLDOUT/SUBSCRIBED.THIS INSTITUTIONS HAS THE DEFAULT RIGHT TO BUY THE REMAINING SHARES OF THE CONCERND COMPANY WHICH IS RAISING MONEY THROUGH THE IPO.
D S PRASAD
1. D S PRASAD  Jan 17, 2008 22:34 I Like It. | I Don't Like It. | Report Abuse Reply
RIGHTS ISSUE is the issue of shares to the existing share holders of a company. This is cost effective than follow on public issue and is one way of rewarding the existing share holders of the company. Normally, the rights issue price is at discount to the company's present market rate. Hence, it is beneficial provided the offered rate is reasonable.


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