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Rights Issue Ex-Date

The rights issue ex-date is the date from which the shares become ex-rights and do not carry any benefit of rights share for the new buyers from the ex-date.

The ex-date for the rights issue is the date from which the shares trading in the market will not carry any benefit of rights shares for the new buyers as the rights have already been declared by the company taking a cut-off date post which the shares become ex-rights. The benefits of the rights remain with the seller selling his shares on or post the ex-rights date.

The ex-rights shares are the shares trading without any rights attached to them. The shares become ex-rights one day before the record date. The record date - 1 is the Ex right date.

Ex-rights price

The ex-rights price is the price of the shares trading in the market post the issue of new rights share. The ex-rights market price generally falls due to an increase in the number of shares in the market and the discount given for the rights issue.

The ex-rights price is known as Theoretical ex-rights price (TERP) rather than just ex-rights price when it comes to the derivation of the value of a company's shares immediately after the rights issue. This is because we can theoretically derive the share price based on the number of shares issued and the discount at which the shares were offered but cannot consider other market forces as to investor's response to the issue and other market sentiments. Thus, calculating the ex-rights mathematically is not possible but we can arrive at an estimation based on TERP.

Ex-rights formula

The Ex-rights formula to arrive at TERP is as below.

TERP = (Rights share * Offer price + Existing shares * Market price) / Total number of shares

Here, the assumption would be that the issue has been 100% subscribed.

Ex-rights Price Calculation Example

The current share price of a company is Rs 500. The company has announced to offer 1 for 5 rights issue at a price of Rs 400. Thus, in such case, the TERP can be estimated as

TERP = (1*400)+(5*500) / 1+5 = 483.83

The ex-rights price can be roughly estimated to trade around Rs 483.33 when the rights issue gets listed on the exchange for trading. Though this is just an estimation, the actual price may differ considering other factors.

Answered on

Frequently Asked Questions

  1. 1. Will I be eligible for rights share if I buy stock on ex-date?

    No, you will not be eligible for the rights shares if the stocks are purchased on the ex-date. The shares become ex-rights from the date of ex-date and carry no rights attached to them. Thus, you cannot enjoy the benefit of right if you buy the shares on ex-date.

    To be eligible for the rights issue, you need to own the shares as on record date announced by the company. Thus, you will have to purchase the shares at least 1 working day before the ex-date so that you own the shares as on record date considering T+2 settlement in India.

     

  2. 2. Will I be eligible for rights share if I sell stock on the ex-date?

    Yes, you will be eligible for rights share even if you sell the stock on or after the ex-date.

    The shares become ex-rights one day previous to the record date. Thus, even when you sell the stock on the ex-rights date, you would still be the owner of the stock as on the record date considering the T+2 settlement in India.

     


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