Right Issue

RIGHT ISSUE
Group:- 07
Ayushi Agarwal: 19PGDM077
Sonal Agarwal: 19PGDM113
Srijan Kishore Saxena: 19PGDM115
Vanshika Dua: 19PGDM121
Vedika Khetan: 19PGDM122
2
What is Rights Issue ?

• A rights issue is an invitation to existing shareholders to purchase
additional new shares in the company, a way by which a listed
company can raise additional capital.
• This type of issue gives existing shareholders securities called
"rights“, which, well, give the shareholders the right to purchase
new shares at a discount to the market price on a stated future
date.
• This issue of capital to the exsiting shareholders of the company
through letter of offer on a pro-rata basis.
• Companies usually opt for a rights issue in order to minimize
dilution and maximize the useful life of tax carryforwards.
• The procedure for rights issue is prescribed under Section 62 of
The Companies Act, 2013.
3
⊸ For example: 1:4 rights issue means an existing investor can buy one extra
four shares already held by him/her. Usually the price at which the new
shares are issued by way of right issue is less than the prevailing market
price of the stock, i.e. the shares are offered at a discount.
Shareholders have 3 options with a rights issue:

⊸ They can choose to buy the right shares: This is what the company
expects from the existing shareholders. If more existing shareholders buy
the right shares, they will raise more capital.
⊸ They can choose to ignore the right issue shares: Many existing
shareholders ignore the idea of buying any more shares if particularly the
company isn’t doing well financially. Why buy from a company that is
deeply in debt?
⊸ They can choose to buy the shares and sell them off: Many
shareholders can buy the right issue shares and can sell off the shares to
other investors. As a result, they can make profits on the right shares and
the company will also be able to raise the required capital.
4
There are two main types of rights issue of shares, which

are as follows:
⊸ Renounceable Rights Issue: Here, an existing
shareholder of the company has the right to transfer
his/her right to subscribe rights issue of shares to
anyone who may not be even shareholder of the
company.
⊸ Non-Renounceable Rights Issue: The existing
shareholders do not have the right to transfer his/her
right to subscribe rights issue of shares to anyone.
Here, the shareholder only has two options available,
either to skip or purchase the shares.
5
Features of Right Issue

⊸ Companies undertake a rights issue when they need cash for
various objectives. The process allows the company to raise
money without incurring underwriting fees.
⊸ A rights issue gives preferential treatment to existing
shareholders, where they are given the right (not obligation) to
purchase shares at a lower price on or before a specified date.
⊸ Existing shareholders also enjoy the right to trade with other
interested market participants until the date at which the new
shares can be purchased. The rights are traded in a similar way
as normal equity shares.
⊸ The number of additional shares that can be purchased by the
shareholders is usually in proportion to their existing
shareholding.
⊸ Existing shareholders can also choose to ignore the rights;
however, if they do not purchase additional shares, then their
existing shareholding will be diluted post issue of additional
shares.
6
Example
⊸ Let’s say an investor owns 100 shares of X company and the
shares are trading at $10 each. The company announces a
rights issue in the ratio of 3 for 5, i.e., each investor holding 5
shares will be eligible to buy 3 new shares. The company
announces a discounted price of, for example, $7 per share.
It means that for every 5 shares (at $10 each) held by an
existing shareholder, the company will offer 3 shares at a
discounted price of $7.
⊸ Investor’s Portfolio Value (before rights issue) = 100 shares x
$10 = $ 1,000
⊸ of right shares to be received = (100 x 3/5) = 60
⊸ Price paid to buy rights shares = 60 shares x $7 = $ 420
⊸ Total number of shares after exercising rights issue = 100 +
60 = 160
⊸ Revised Value of the portfolio after exercising rights issue = $
1,000 + $420 = $1,420
⊸ Should be price per share post-rights issue = $1,420 / 160 =
7
Why Company Issue Rights

Offering ?
⊸ Companies most commonly issue a rights
offering to raise additional capital.
⊸ A company may need extra capital to meet its
current financial obligations.
⊸ Troubled companies typically use rights issues to
pay down debt, especially when they are unable
to borrow more money.
Reasons for Rights
8
Issue
⊸ When a company is planning an expansion of its operations, it

may require a huge amount of capital. Instead of opting for debt,
they may like to go for equity to avoid fixed payments of interest.
To raise equity capital, a rights issue may be a faster way to
achieve the objective.
⊸ A project where debt/loan funding may not be available/suitable
or expensive usually makes a company raise capital through a
rights issue.
⊸ Companies looking to improve their debt to equity ratio or
looking to buy a new company may opt for funding via the same
route.
⊸ Sometimes troubled companies may issue shares to pay off debt
in order to improve their financial health.
9
Advantages and
Disadvantages
⊸ Fastest way of ⊸ Raising capital

raising capital upto a confined
⊸ Inflation of limit
promoter ⊸ Value of each
shareholding share may get
⊸ Record date and diluted
pricing ⊸ Diminish the
⊸ No score of Debt company’s public
image
Procedure for rights issue
Check if Articles permit the issue of securities under right issue. Otherwise, first amend
the Articles.
Check whether securities issued are within the limit of authorized share capital of the
company. Otherwise, first amend Memorandum and Articles.
Obtain the certificate of valuation of shares from a Chartered Accountant for the
purpose of deciding the issue price of the shares.
Issue notice of Board Meeting to all the Directors at least Seven days before the meeting.
Convene a board Meeting

11
Post Board Meeting Actions
Issue notice of Board Meeting to all the directors of Company at least 7

days before the date of Board Meeting for Allotment of Shares.
Convene a board Meeting
Apply to Stamping authority for Consolidated Stamp duty on share

Certificates
Issue of Share Certificates as per the provisions of section 46 of the

Companies Act, 2013 to the shareholders within a period of 2 months from
the date of allotment.
12
SEBI GUIDELINES REGARDING RIGHTs ISSUE

⊸ Once a company has announced the right issue then it cannot withdraw its proposal. It
has to then it cannot withdraw its proposal. It has to issue the securities as per the
announcement.
⊸ Underwriting of right issue is optional. Underwriting of right issue is optional.
Underwriting can be done on the discretion of the company.
⊸ Before right issue company has to take prior approval of the registrar of the
companies(ROC ‘s).
⊸ Right issues should not be kept open for more then 60 days.
⊸ Right issue must be kept open for at least 30 days.
⊸ The amount of securities offered should not exceed the amount specified in
the prospectus or letter of offer.
⊸ Reservation is not allowed on right shares.
⊸ If a company does not receive minimum subscription of 90% of the issue then entire
subscription will be refunded within 30 days.
⊸ If a company delay the refund of over subscription for more then 15 days after
the period of 30 days then it will be liable to pay interest @ 15% p.a.
13
RIGHT OFFERING BY BAJAJ ELECTRICALS
LTD.
⊸ Incorporation date: 14 July 1938
⊸ Listing: The Stock Exchange, Mumbai, National Stock Exchange of India Ltd.
⊸ Face Value Of Equity Shares=2
⊸ 2
⊸ Market Lot Of Equity Shares=1
⊸ 1
⊸ Announcement date: February 18, 2020
⊸ Right Date: February 6, 2020.
⊸ Ratio: 13:118
⊸ Premium:Rs 308
⊸ Price-Rs.310
⊸ No. of shares: Rs. 3500 million by way of rights issue of up to 1,12,90,142 Equity Shares aggregating up to Rs. 3,499.94
million.
⊸ Purpose: Raise fresh capital, and to payoff its debts of 136,491.98 lacs
⊸ Performance of stock: Shares of BAJAJ ELECTRICALS LTD. was last trading in BSE at Rs.371.55 as compared to the previous
close of Rs. 377.45. The total number of shares traded during the day was 3777 in over 729 trades.
The stock hit an intraday high of Rs. 402 and intraday low of 371.55. The net turnover during the day was Rs. 1430415 .
14
Thank
You!

Right Issue

Uploaded by

Copyright:

Available Formats

Right Issue

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Right Issue

Uploaded by

Copyright:

Available Formats

RIGHT ISSUE

What is Rights Issue ?

Shareholders have 3 options with a rights issue:

There are two main types of rights issue of shares, which

Features of Right Issue

Why Company Issue Rights

⊸ When a company is planning an expansion of its operations, it

⊸ Fastest way of ⊸ Raising capital

Convene a board Meeting

Post Board Meeting Actions

Issue notice of Board Meeting to all the directors of Company at least 7

Convene a board Meeting

Apply to Stamping authority for Consolidated Stamp duty on share

Issue of Share Certificates as per the provisions of section 46 of the

SEBI GUIDELINES REGARDING RIGHTs ISSUE

You might also like