What is the Rights Issue?

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About Rights Issue:

A rights issue is an invitation to existing shareholders to purchase additional new shares in the company.
This type of issue gives existing shareholders securities called rights.
With the rights, the shareholder can purchase new shares at a discount to the market price on a stated future date.
The company is giving shareholders a chance to increase their exposure to the stock at a discount price.
Until the date at which the new shares can be purchased, shareholders may trade the rights on the market the same way that they would trade ordinary shares.
The rights issued to a shareholder have value, thus compensating current shareholders for the future dilution of their existing shares’ value.
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.

Q1) What are equity shares?

Equity shares are long-term financing sources for any company. These shares are issued to the general public and are non-redeemable in nature. Investors in such shares hold the right to vote, share profits and claim assets of a company. The value in case of equity shares can be expressed in various terms like par value, face value, book value and so on.