Does a rights issue dilute ownership?

Yes, a rights issue can dilute ownership, but it depends on whether existing shareholders participate or not.

When a company issues new shares through a rights issue, it increases the total number of shares available. If you, as an existing shareholder, do not buy the new shares offered to you, your ownership percentage in the company will decrease because your shareholding will now represent a smaller portion of the total shares.

Why this happens:

More Shares, Same Value:

• The company’s total value stays the same, but that value is now spread across more shares. This lowers the value of each share, including the ones you already own.

Discounted Price:

• The new shares are usually offered at a discount to encourage shareholders to buy them. If you don’t participate, other shareholders or new investors may buy those shares, which reduces your stake in the company.

Ownership Percentage Decreases:

• For example, if a company has 50 million shares and you own 5 million (10% ownership), and the company issues 20 million new shares, your 5 million shares will now represent only 7.14% of the total 70 million shares if you don’t buy more.