What is Right Entitlement?
A company issues a right to buy shares to its shareholders on a pre-determined date called the record date. Right Entitlements (RE) are offered to shareholders as a ratio to the number of securities held on this record date. A shareholder may refuse to subscribe to the rights issue and just let the 'right' lapse. Alternatively, the shareholder can renounce/trade the entitlement in favour of another person for a price. The RE will be trading on the secondary markets as per the dates specified by the exchange.
For instance, Suzlon Energy Ltd. had come up with right issues in the ratio of 5:21 wherein for every 21 shares held of Suzlon, you will get 5 RE in your Demat account. The Suzlon RE traded on the exchange between 11th October and 14th October. The following are the scenarios:
- Shareholders who do not wish to apply for the right issues can sell the RE on the exchange to make a nominal profit.
- Non-Shareholders who wants to apply for the right issues can buy the RE from the open market on or before 14th October and participate in the right issues.
- If the RE is held in your Demat without exercising, will lapse/expire at ₹0.
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