Rights Issue Renunciation

The rights issue renunciation is the transfer of the rights entitlements by a shareholder not willing to accept the rights offer and want to renounce the shares in favour of another person.

This process of transfer or sale to another person is known as the renunciation of rights share. The person selling the rights entitlement is known as the renouncer and the person buying the rights entitlements is known as the renouncee.

With the introduction of dematerialized rights entitlements, the renunciation of rights entitlements has been made efficient and effective providing transparency in the renunciation process by way of rights entitlement trading platform on the stock exchange. The interested sellers and buyers participate in this trading window and exchange the rights at a better price driven by market forces. Earlier to this, the shareholders did not have much choice and had to either let go of their rights or transfer it to another person either free or at a much lower price. However, with the renunciation of the rights entitlement process, it provides a better opportunity to shareholders to sell their rights at a much better price rather than let it lapse as is if one is not interested to subscribe to the issue.

The renunciation of rights shares can be done either in part or full. There are two ways of renunciation:

1. On-Market Renunciation - This is the rights entitlements trading platform of the stock exchange wherein the rights can be renounced on the exchange floor at a better price. The on-market renunciation can happen only till the last date of the rights entitlement trading which is generally 3-4 working days before the issue closing date.
2. Off-market renunciation - In this case, the interested buyer and seller can mutually agree on the price and complete the renunciation off-market. The off-market renunciation can be done until the issue closure date however it should be done in such a way that the renouncee has sufficient time to apply for the rights issue before the issue closure date.

Answered on 2020-08-30