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Question

What is a Rights Issue?

Answer

A Rights Issue is a mechanism by which companies raise additional capital to invest, expand or reorganise. The event gives existing shareholders of a company the opportunity (not the obligation) to purchase additional shares in the company, generally at a favourable price in comparison with the trading price in the market.

Rights Issue Example

If the terms of a rights issue are for example:

  • 5 newshares for every 2 shares held on ex date at GBP2 per share
  • If you held 100 shares on ex date you would be entitled to 250 rights (100/2x5=250)
  • You could take up these rights and convert them to ordinary shares at the cost of GBP2 per right which would be a total cost to you of GBP500
  • If you do not wish to convert your rights you could sell them on the market or allow them to lapse

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