An offer only for shareholders

Watch both choices.

A company needs fresh money. Instead of going to the public, it asks the people who already own its shares.

Buy, and you keep your slice but pay cash. Skip, and you keep your cash but your slice shrinks.

How a rights issue works

• Fresh money from owners like a second IPO, just for them — The company sells **new** shares to its existing shareholders to raise capital.
• In proportion the ratio — **1:4** means you may buy 1 new share for every 4 you hold. Own 400, buy up to 100.
• At a discount but it still costs money — The rights price is usually below the market price. Unlike a bonus, you **pay** for these shares.
• Your choice subscribe or not — Nobody has to take part. But new shares are being created, so if you don't buy, your slice of the company shrinks.

Subscribe or not?

Try each combination.

You own **400 shares** (1% of the company). The offer is **1:4 at ₹80**. Change the market price and your choice.

**Remember:** don't be swayed by the discount alone. Subscribe only if you'd want to own more of this company anyway.

Example prices. "In theory" uses the blended price of old and new shares; the real price depends on the market. In India you can often sell your right instead of using it.

Rights issue or bonus?

• Bonus issue free — Everyone gets new shares automatically, from reserves. No money moves, and nobody's slice changes.
• Rights issue you pay — You're **offered** new shares at a discount. The company raises fresh money; those who don't buy see their slice shrink.

Check — Question 4 of 4

Bonus or rights?

What you now know

• A rights issue sells new shares to existing shareholders to raise fresh money.
• A 1:4 ratio means 1 new share for every 4 you hold.
• Rights shares are usually priced below the market, but you pay for them.
• If you don't subscribe, your slice of the company shrinks.
• If the market price falls below the rights price, buying in the market is cheaper.