rights issue

An issue of shares for cash by a company to its existing shareholders on a basis pro rata to their existing shareholdings. The issue will normally be at a substantial discount to the current share price (usually between 20% and 40% discount). The rights issue is a means of implementing pre-emption rights. On a rights issue, existing shareholders will receive a provisional allotment letter, which tells them how many shares they have the right to subscribe for and the subscription price for the rights. They may exercise their rights and subscribe for the shares. Alternatively, they may sell the provisional allotment letter to another person who can subscribe for the shares. This is known as selling the rights nil paid. A third alternative is to take no action by the deadline for subscription. In this case, the company will sell the shares in the market, retain the subscription price and remit any excess proceeds from the sale to the shareholder who failed to take up his rights. Dresdner Kleinwort Wasserstein financial glossary

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subscription rights / rights offer Euroclear Clearing and Settlement glossary

Privilege granted to existing shareholders of a company to subscribe to shares of a new issue against payment. Rights are often tradable in the secondary market. Euroclear Clearing and Settlement glossary

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An offer of securities to existing shareholders by a company in proportion to their existing holdings. Exchange Handbook Glossary

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An offer to sell a new issue of shares by a company to its existing shareholders, usually at a price which is lower than the market price.

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An invitation to existing shareholders to purchase additional shares in the company. London Stock Exchange Glossary

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rights issue rights issue ➔ issue²

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   One of the ways that a company can raise additional funds is to issue new shares. These new shares must be first offered to current shareholders and a rights issue allows a shareholder to buy an additional number of shares for each share held. For example, a two-for-three rights issue entitles shareholders to buy two additional shares for every three owned. Rights can be traded in the market.

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rights issue UK US noun [C] STOCK MARKET

► an occasion when a company offers new shares at a lower price than usual to its existing shareholders, or the number of shares made available in this way: »

The acquisition will neither dilute shareholders' earnings nor prompt a rights issue.

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Much of the rights issue proceeds were used to plug a financial black hole.