Examples of Rights Issue

Rights issue is an issue of additional shares by a company to raise capital for expansion or to solve a liquidity problem. With the issued rights, existing shareholders have the privilege to buy new shares of a company in proportion to their existing holding, and at a discounted price.

Example 1:
MAA Company has 400,000 $1 ordinary shares as at 30 June 2011. The company decided to make a rights issue to its existing shareholders by offering 1 new share for every 4 shares held, at $1.20 each.
Therefore, with 400,000 shares, the rights issue = 400,000 / 4 = 100,000 shares.
The amount received from the issue = 100,000 shares * $1.20 = $120,000.

Example 2:
Golden plc had the following information:
Authorized Capital 5,000,000 $0.50 ordinary shares
Issued Capital 3,000,000 $0.50 ordinary shares
The company decided to make a rights issue of two ordinary shares for every fifteen ordinary shares held at a premium of $0.15 each.
Therefore,
with 3,000,000 shares issued, the rights issue = 3,000,000 * (2/15) = 400,000 shares
The amount received from the issue = 400,000 shares * ($0.50 + 0.15) = $260,000.

* Next: Bonus Issue vs Right Issue

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Kelvin Wong Loke Yuen is an experienced writer with a strong background in finance, specializing in the creation of informative and engaging content on topics such as investment strategies, financial ratio analysis, and more. With years of experience in both financial writing and education, Kelvin is adept at translating complex financial concepts into clear, accessible language for a wide range of audiences. Follow him on: LinkedIn.

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