What is Rights Issue?

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What is Rights Issue? Blog Image


Indiabulls Housing Finance plans to raise ₹3,693 crore through rights issue.

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. 

Q1: What is earnings per share?

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