Basics of rights issued
The right issue is a process of issuing more number of the company’s shares to the public. Rights issue happens when the company needs money or you can call it a cash crunch.
The stocks will be sold at a discounted price compared to traded price. The amount of discount given is directly proportional to the amount of cash crunch situation of the company.
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In general, the company doing well with plans of new investment or debt reconstruction uses the rights issued. This will resolve the immediate cash needs of the company to position themselves better in the current market situation. Rights issued can be seen as a disadvantage or negative as an investor but the reason for rights issued should be the deciding factor for deciding the value.
The right issue will be set at a specified future and discounted price by the board of directors.
Advantages for the company:
The company will be increasing the liquidity.
The company will be investing the amount in the future unlike paying the early investors a payout.
The company will be doing debt reconstruction.
The advantage for the investor:
Buying the company’s stock at a discounted price.
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There will not be a major change in any of the fundamentals.
