A Letter of Offer (LOF) in a rights issue is the primary, mandatory legal document issued by a company to its existing shareholders, detailing the terms of inviting them to purchase additional shares in proportion to their current holding. It outlines the issue price, rights entitlement ratio, opening/closing dates, and the company's financial rationale.
Key components of the Letter of Offer typically include:
- General Information: Company details, registered office, board of directors, and, if applicable, the lead manager.
- Terms of the Issue:
- Issue Size: Total number of shares and total capital to be raised.
- Rights Entitlement Ratio: The ratio of new shares offered per existing share held (e.g., 1:5).
- Issue Price: The price at which the new shares are offered, usually at a discount to the market price.
- Record Date: The specific date to determine which shareholders are eligible.
- Issue Schedule: Opening and closing dates for subscription.
- Purpose & Financials:
- Objects of the Issue: Specific reasons for raising funds (e.g., debt repayment, working capital, expansion).
- Financial Information: Audited financial statements, capitalisation statement, and financial performance.
- Risk Factors: Internal and external risks that could impact the business or the investment.
- Procedures:
- Right of Renunciation: Procedures for shareholders to renounce (transfer) their rights to others.
- Application Process: Instructions for applying for shares, including additional shares.
- Legal & Statutory Disclosures: Compliance with regulatory bodies, such as SEBI (in India).
The Letter of Offer is designed to provide all material information, ensuring transparency regarding the company’s financial health and the purpose of the capital raise.
