What is a rights issue?
A rights issue lets existing shareholders buy new shares, usually at a discount, in proportion to their holding. A way for companies to raise fresh capital.
A rights issue is when a listed company raises money by offering new shares to its existing shareholders, usually at a price below the market rate, in proportion to what they already own (for example, "1 rights share for every 5 held"). It’s a way to bring in fresh capital — to fund growth, cut debt, or shore up the balance sheet — while giving current owners first claim.
As a shareholder you have a choice: subscribe (buy the new shares at the discounted price), let the rights lapse, or in many cases sell your rights entitlement to someone else in the market. Doing nothing has a cost — if you don’t subscribe or sell, your stake gets diluted (your percentage of the company shrinks) and you forgo the discount.
Why a company raises money matters more than the discount. A rights issue to fund a promising expansion is very different from one to plug repeated losses. The discount can look attractive, but read the filing for the purpose, the company’s health, and the dilution before deciding — and remember the share price typically adjusts downward for the new shares.
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Common questions
Should I subscribe to a rights issue?
It depends on why the company is raising money, its financial health, and the discount versus the post-issue value — this is a personal decision, not a recommendation. Not subscribing (and not selling your rights) dilutes your stake and wastes the discount.
What is the difference between a rights issue and a bonus issue?
In a rights issue you pay (a discounted price) for new shares; in a bonus issue you receive free shares from the company’s reserves. A rights issue raises new money; a bonus issue does not.