Rights issues are fairly regular occurrences and there’s a good chance that over your investing lifetime you may have to deal with one. Yet they can sometimes lead to fear and confusion among investors. This need not be the case. Here, I look at the main issues you need to be aware of.
One of the main reasons for a company having its shares listed on the stock exchange is so that it can raise money by selling new ones to investors when it needs to. One way of raising money is to give existing shareholders the right to buy new shares in proportion to their existing shareholding at a discount to the existing share price, in what is known as a rights issue.
Some investors find it difficult to work out what rights issues really mean for the value of their investments and whether it is in their best interest to buy more shares.