Quick Summary
Rights Issue is when a company offers new shares to existing shareholders in proportion to their current shareholdings, usually at a discount to market price.
A Rights Issue is an invitation to existing shareholders to purchase additional new shares in the company at a discounted price. This type of issue gives existing shareholders securities called "rights" which allow them to buy new shares at a discount.
Key Features
- Offered to existing shareholders only
- In proportion to existing holdings
- Usually at a discount to market price
- Shareholders can renounce their rights
- Letter of Offer must be filed with ROC
Process
- Board Resolution for rights issue
- Decide ratio and price
- File Letter of Offer with ROC (Form PAS-2)
- Dispatch offer letters to shareholders
- Open for acceptance (minimum 15 days)
- Receive applications
- Allot shares and file PAS-3
Benefits
- Cheaper than public issue
- Protects existing shareholders' rights
- Faster process than IPO
- No underwriting required
Key Points
- Offered to existing shareholders
- Proportional to existing holding
- Usually at discount to market
- Rights can be renounced/sold
- File PAS-3 after allotment