What is Right issues?

What is Right issue?

Right issue (Also called right offering) is a framework through which companies raise additional capital by a new issue of Equity shares to the existing shareholders at a discounted price. A company goes for the right issue for various reasons, such as expanding the business, acquiring new ventures, reducing debt, etc.  

The company will issue the Right Entitlement in the proportion of the shares held by their existing shareholders.

For Example, Company ‘MNC Ltd’ trading at ₹102 announces a Right issue of 3:5 (i.e., each investor holding 5 shares of MNC Ltd will be eligible to buy 3 shares) to the existing shareholders at a discounted price of ₹90. Mr. S, a shareholder of ‘MNC Ltd,’ holds 100 Qty. So, Mr. S will receive a Right Entitlement of 60 (100*3/5) shares. In simple terms, he will be eligible to buy 60 shares in such an issue.

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