It is a basic bookish knowledge of what a Rights Issue is. Why does a company issue rights? How does a rights issue benefit the company's shareholders?

1. By- Manash Pratim Deka

2.  RIL has come up with Rights issue.
 Reliance to be debt free by 2021.
 RIL might try to debt free through other ways-
 JIO – Facebook deal
 RIL – Saudi Aramco deal.
 RIL deal with BP.
 Before 30 years RIL came up with the last rights issue.

3. What is a Rights Issue
 Invitation to existing shareholders to purchase additional
new shares in the company.
 New shares are bought a discounted price

4. When will a shareholder be eligible
to apply or exercise Rights issue?
 A shareholder should be holding shares at a record date.
 A specific window of dates is given.

5. How Rights issue works?
 Being a shareholder, a person has three choices –
 Exercises the rights
 Renounces the rights
 Ignores the rights

6. When the shareholder EXERCISES
the rights
 100 shares @ Rs.100 per share
 rights issue – 1:1 ratio
 additional 100 shares (at a discount)
 Rs.80 per share (20% discount)
 New price of 100 shares = Rs.80 x 100 = Rs.8000
 Total price = 10,000 + 8,000 = Rs.18,000
 Average price of 200 shares = 18,000/200 = Rs. 90
 Thus, average/effective cost of shareholding goes down
from Rs.100 to Rs.90

7. When a shareholder RENOUNCES
the rights
 Shareholder might sell the rights.
 The buyer may not be a shareholder
 The buyer would also be eligible to apply for the rights
issue.

8.  For shareholder A
100 shares @Rs.100 per share
Price = 100 x 100 = Rs. 10,000
Sells the rights @ Rs.10 per share
Effective cost of 100 shares = 100 – 10 = Rs.90
Effective cost of holding of 100 shares is Rs.90.

9.  For B (buyer of rights)
 B would be able to buy 100 new shares @ Rs.80 per share
 He also paid Rs.10 per share to shareholder A
 Effective price for 100 shares = Rs.80 + Rs. 10 = Rs.90

10. When a shareholder IGNORES the
rights
 Originally, 100 shares @ Rs.100 per share
 Afterwards, 100 shares @ Rs.100 per share
 Possibility of market price of share going down.
 Shareholder would be potentially at a loss.

11. Thank You