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Right Share | Right Issue Of Shares

Today, let us understand what is the right issue of shares.

Right Share | Right Issue

right issue

Issue of share of right issue of shares is basically a way through which a listed company in stock exchange raises additional funds. the company is giving the shareholders the chance to increase their exposure to the stock at a discounted price. that we need to understand here is why the company need to issue share at discount very simple any issue of share is to raise capital that is the company need money to grow and expand. either by way of purchase of new machinery land purchase open new branches or even to repay its loans. they can do it in multiple ways they can come up with an initial public offering is when a company initially offers shares of stock to the public with this initial public offering company get listed in stock exchange there can be a possibility that promoters want to reduce their stake and comes up with a new issue another way to raise the capital is to come up with a right issue. a company way comes up with a fresh batch of shares but may choose not to go to the public rather it may just approach the existing shareholders and offer them some shares at a discount that is what we will discuss in detail.

We will discuss in detail the types of Rights issues.

1 renounceable right issue 

2 nonrenounceable right issue 

In Renounceable right issues here the existing shareholders of the company have the right to transfer his or to subscribe the right issue of shares to anyone who may not be even the shareholder of the company on the contrary in the non-renounceable right issue the existing shareholder does not have the right to transfer his or her right to subscribe right issues or shares to anyone here the shareholders only have to option either to ignore the right issues or to purchase the shares.

What do we need to invest in the right issue?

1.How strong is the company.

2.What is the intention of the management?

3.Are the basic fundamentals in place?

4.CMP price variation in the past.

5.Is it worth it for you?

Some Advantages of right issue 

1.The right share is issued at a discount price for its existing shareholders by the company.

2.The company saves a significant amount of money such as underwriting fees, advertisement costs,s and so on.

3.By issuing the right share no need to worried about the control of the company this is because it remains in the hands of the existing shareholders.

4.There is an equal distribution of the shares and the same proportion of voting rights.

Some disadvantages of right issue

1.The company may not be able to raise more funds and fail to achieve its target.

2.The value of each share may get diluted if there are an increased number of share issued.

3.It creates a negative market sentiment it is normally assumed that the company is struggling to run its business operations smoothly.

How right share works?

let's say that ABC and companies having a shortage of cash are in debt and they cannot go out and get another debt as of now so they think the best way to remain afloat is to issue the right shares hence they decide to issue the shares to the existing shareholders at rupees 100 per share when the market price of the share is rupees 200 per share that means 50% discount they will issue the share in 10 into 1 ratio that is for every 10 existing shares one share will be an issue that means if somebody has 100 shares then they can get 10 additional shares at a discounted price at this juncture the existing shareholders have three option they can choose to buy the right shares. they can ignore the right issue of shares or they can choose to buy and sell it at a discounted price and make a profit from the selling so in this scenario what ABC and companies should do should they go about issuing the right share would it be beneficial the answer is they should definitely go for issuing the right share but before the issue of right share they need to be cleary how they going to utilize the capital.

would they pay off the debt or would they invest in a new project to generate more cash they would be looking for expansion .once they are clear with their strategies what they want to do with the money they can set a goal and issue the right shares accordingly?

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