What is Rights Issue?

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About Rights Issue:

A rights issue is an offering of rights to the existing shareholders of a company that gives them an opportunity to buy additional shares directly from the companyat a discounted price rather than buying them in the secondary market.
It 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.
The number of additional shares that can be bought depends on the existing holdings of the shareowners.
Until the date at which the new shares can be purchased, shareholders may trade the rights on the marketthe same way that they would trade ordinary shares.
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.
Dilution occurs because a rights offering spreads a company’s net profit over a larger number of shares. Thus, the company’s earnings per share, or EPS, decreases as the allocated earnings result in share dilution.

Why issue a 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.

Earnings per share or EPS is an important financial measure, which indicates the profitability of a company. It is calculated by dividing the company’s net income with its total number of outstanding shares. It is a tool that market participants use frequently to gauge the profitability of a company before buying its shares.

Source:Indiabulls Housing Finance rights issue opens today; Here’s All You Need To Know