Rights Issue Calculation

A listed company may make a rights issue of additional shares to raise further capital. Shares are offered to existing shareholders in proportion to their existing holding and at a price lower than the listed price in stock exchange.

Learn how to calculate rights issue with the following example:

HK Ltd has the following balances in its balance sheet:
1,000,000 $1 ordinary shares    $1,000,000
Bank                                          $70,000
The company decided to make a rights issue of 3 ordinary shares for every 10 ordinary shares held. The new shares are issued at a price of $1.50 each.

Solution:
Rights issue = 1,000,000 * 3/10 = 300,000
The new shares are issued at a premium of = 1.50 - 1 = $0.50
Share premium = 300,000 * 0.50 = $150,000
The company will receive = 300,000 * $1.50 = $450,000

After the rights issue, the company will have the following balances:
1,300,000 $1 ordinary shares $1,300,000
Share premium                       $150,000
Bank  (70,000 + 450,000)     $520,000

* Next: Bonus Issue Calculation

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