You must have heard the name of the Rights issue in the stock market many times, What is a rights issue in the stock market, today you are going to know in this post.
When a company listed on a Stock market issues its ‘right issue‘, that company first gives priority to its shareholders in the rights issue. Here the shares will be allowed to be bought by the shareholders who already have the shares of the company. The company proposes to buy new shares in front of its shareholders in proportion to their shares. For example, if a company announces a right issue in the ratio of 1: 4, it means that you will have the right to buy 1 share on 4 shares of that company. The company offers its shareholders to buy shares at a lower price than the market through the right issue to expand its business, make debt work.
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What is a Rights issue?
Rights issue refers to an offer by which companies can raise additional capital from their existing shareholders. And
This offer is used only by companies listed on the stock exchange and through this, the company gives its shareholders a chance to buy additional shares. Which is given at a price less than the market price, a date has been set by the companies to bring a ‘rights issue’, which is announced by the company itself and is given an opportunity to buy additional shares on this fixed date.
Why does the company bring Rights issue?
Whenever a company wants to raise money from the stock market through a rights issue, then it can bring a rights issue. The reason for the company to raise this money is different for different companies. Some companies bring this rights issue for the development of their business. So some companies also bring rights issues to reduce their debt.
What is the benefit of Rights issue?
If we look at it from the perspective of an investor, we have only one benefit in the Rights Issue. And that is the profit, the company gives us its shares at a good discount. Which reduces the purchase price of our total shares. And whenever that share price goes above that price, then we can get more profit. But some people even argue that if the company is giving shares at such a discount, then perhaps the financial situation of the company will be bad. Therefore, before applying in the Rights Issue, we should also know that for what reason the company is bringing the Rights Issue? Then if we feel right then we can apply in Rights Issue.
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Importance of rights issue:
As per the rules, a company does not require a shareholders’ meeting to raise funds using the ‘rights issue’ offer, just getting approval from the Board of Directors is enough. That is why raising capital through this offer issue is relatively easy and does not take much time, which is compatible with current conditions, while other means of raising capital require shareholders’ approval, which requires considerable Time is required. Thus we can call ‘Rights Issue’ a more efficient mechanism of raising capital.
Purpose of the rights issue:
Companies use the ‘rights issue’ process to raise capital. Along with this, companies also use ‘rights issue’ to raise money to expand their business and acquire another company. In addition, some companies also use the rights issue to reduce their debt.
Rights issue ‘improvement:
- In order to make it easier for companies to raise funds during the current crisis, SEBI has relaxed the guidelines for companies starting the ‘rights issue’ process on or before March 31, 2021.
- The eligibility requirement for an average market capitalization of public shareholding has been reduced from Rs 250 crore to Rs 100 crore.
- In addition, listed entities collecting funds up to Rs 25 crore through a rights issue are no longer required to file a Draft Offer Document with SEBI.
- A ‘Draft Offer Document’ refers to the first document that is presented by a company for approval to SEBI and the Stock Exchange for raising funds through a ‘rights issue’ or any other process. This document contains a description of this process.
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Process of Rights issue:
Whenever a company wants to bring its rights issue, it has to first submit its application to the market regulator SEBI, then only after the final letter is received by SEBI, the company can bring its issue, all the details of the company are given in the preamble. There are many things like – share offer, face value, price, ratio, Rights issue Manager, Rights issue Registrar, record date, open date, close date, allotment date, listing date, financial statement of the company, all the board of directors of the company, etc.
How to apply for rights issues?
Only shareholders can apply in the rights issue. There are mainly 2 ways to apply in the rights issues.
Step -1
You can learn about the rights issue by contacting the official website of the company whose rights issue you want to apply and you can download the NSE or BSE form and fill all the details in it with your bank or Can be deposited with your brokerage house.
Step -2
You can apply from the Registrar of the company that issues the rights issue, we are telling you that you have to apply.
• First Visit the registrar’s website.
• Go to the ‘Rights Issue’ section.
• Select Rights Issue from the dropdown.
• Enter Demat Account Number.
• Fill the online application form.
• Validate and submit the application.
Rights issue FAQs?
What is the Rights Issue Open Date?
When the right issue is open for bidding, it is called the rights issue open date.
What is a Rights Issue Close Date?
When the right issue bidding is closed, it is called the rights issue close date
When is the Rights Issue Record Date?
You can participate in the rights issue when you have the shares of the company as on the record date.
What is a Rights Issue Price?
The price at which the rights issue brings the offer is the right issue price.
What is a Rights Issue Size?
The total amount of the rights issue the company brings is the rights issue size.
What is the Rights Issue Ratio?
The ratio is how many shares the company is giving in exchange for how many shares.
How to apply for Rights Issue 2021?
You can apply for a rights issue in two ways:
1- Net Banking (ASBA)
2- Registrar
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