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Tuesday, February 28, 2012

What is right issue?

Right issue is the capital raising move by the company to its existing customers usually at discount.
It depends upon the existing investor to accept or reject the offer. Right issuance is done proportionately on the basis of existing shareholding of the investors.
2:3 right issuance means for every 3 existing shares 2 right shares shall be issued.
To qualify for the right issuance investor should have shares in his demat account on the record date. New buyers should buy shares a day before the ex-date.
Investor can later sell shares in the market.
Recently Bhushan steel has offered a right issue in the ratio 1: 15 (one right share for existing 15 shares).
Investor should always opt for right issue if fundamentals of the offering company are impressive.
As right issuance results in equity dilution (reduction is EPS) share prices correct on ex –date.


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