Stocks and Shares (5)

Rights Issue

A rights issue gives the existing shareholders the right to subscribe for new ordinary shares at an issue price lower than the prevailing market price and at a ratio equivalent to their existing shareholding.

Companies carry out a rights issue when they want to raise additional funds to finance their capital requirements.

In offering a rights issue, the company sends out a provisional allotment letter (PAL) to all existing shareholders informing them of the rights issue entitlement.

Shareholders are required to follow all the instructions given in the PAL in subscribing their rights for the new shares.

If you choose not to exercise your right, remember that the PAL can be sold to the open market (if quoted) or the entitlement can be renounced to someone else.

Often, you will see a category of 'A' Shares listed in the newspapers and investment magazines.

The listing of 'A' shares refer to the issue of shares not qualified to entitlements, such as dividends, bonus and rights issues.

These shares will later merge with the existing shares after the entitlement date.