Hey everyone! This week we’re continuing the series on simple investment explanations. If you’ve been paying attention to the stock market, you may have heard by now about rights issues. In fact, both Seprod and Barita Investments Limited have done rights issues in recent times, and by the time you’re reading this, Barita would have announced the details of another rights issue they have coming.
So, if you’ve wondered about rights issues before, or Googled but didn’t quite get it, then today is your lucky day. Come with me as I try to explain what a rights issue is in the usual simple, clear, beginner-friendly language.
As always, I’ll give a few details to go along with the explanation, but let me start with the straightforward definition at first.
A rights issue is an invitation from a company to its owners (the shareholders) to purchase newly issued shares in that company within a specific time.
That’s it! Simple and straightforward…now for the details.
In a rights issue, a company offers a set amount of shares for a set price to a specific set of people. Think of it like an IPO, but only to existing shareholders of the company.
The general public can only get shares if current shareholders don’t take up the amount offered to them. Unlike regular IPOs, rights issues can’t be truly oversubscribed in the same way, as each shareholder has a specific amount of shares reserved for them and them alone from the total offer. No one can take your allotment unless you the shareholder chooses not to take up the offer. That is why they are called “rights issues”, because shareholders literally have the right to buy their allocated shares before anyone else.