Glossary Rights Offering Related Content. A securities offering that provides an issuer's existing shareholders the opportunity to buy a pro rata portion of additional shares. These additional shares are offered at a specific price per share the subscription price , which is typically set at a discount to the recent trading price of the issuer's shares. A rights offering provides a capital raising opportunity which is not dilutive to existing shareholders.
The rights are often transferable, allowing the holder to sell them on the open market. But if you decide not to buy more shares or you sell your rights, then your share in the company will be diluted. Generally, a rights offering happens because the company wants or needs to raise capital. For example, if the company is carrying a substantial amount of debt on its balance sheet , a rights offering could raise money to pay down some of those obligations.
A rights issue could also be used to create capital for expansion plans or to acquire another business. For example, the money could go toward developing new products and lines of service or opening new business locations. Being able to purchase additional shares in a company has some advantages. For starters, you can effectively get the stock on sale. Assuming those shares increase in value, along with the other shares you already own, a rights issue could end up being profitable for you.
The same is true if you decide to sell your rights to buy the shares to another investor. Generally, the amount of shares an investor can buy through a rights offering is proportionate to the number of shares they currently own.
Rights issues can yield benefits to the company by allowing them to raise capital. If a company is struggling financially, this kind of move could help them to improve their balance sheet by eliminating debt or injecting new cash flow into the business. Page last updated: 08 October When a company needs more capital, there are a number of options available. Always review the offer before taking part Companies raising capital via a rights offer may send existing shareholders an offer document, or can just make an announcement via the NZX.
To lease better premises or hire new staff, for example, or buy new technology or machinery, or a merger or acquisition To pay off or avoid debt. The company may need the extra money to pay off existing debt, or may not want or be able to borrow more It is facing difficult times.
Falling revenue or rising costs, for example, or fresh challenges for its industry, sector or the wider economy Bear in mind the risks involved in such offers: The company could be in difficulty. Too much debt or challenging economic conditions, for example, hence the need to go back to its owners i.
By injecting new shares into the market, the company is redistributing value and generally decreasing the value of individual shares. To maintain your relative shareholding, and any associated rights such as voting, you would likely need to take up all rights on offer.
Also, think about your overall investment portfolio: Do you want to increase your investment in this company? How does increasing the size of your investment in this company fit with your overall investment portfolio and strategy. After the closing date, the company will tell you how many new shares you have been issued. The company might not get its target amount of capital If not enough existing shareholders take up the rights offer, new investors may then be offered shares.
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