How to Apply for Rights Issue Online?

Companies often seek ways to raise capital to fuel growth, pay off debts, or fund new projects. One such method is a rights issue, which allows existing shareholders to purchase additional shares at a discounted price. In this article, we will explore the concept of a rights issue, its mechanics, benefits, and the reasons companies opt for it while also addressing how shareholders can participate in or opt out of the process.

Whether you're an investor or simply curious about financial strategies, understanding rights issues can provide valuable insight into how businesses operate and grow.

What is a Rights Issue?

A rights issue is when a company needs more money and offers its existing shareholders a chance to buy additional shares at a lower price than the current market price, also known as a rights offering.

Unlike public offerings, which are open to anyone, a rights issue is exclusive to current shareholders.

This helps the company raise funds, but only people who already own shares can participate, unlike a regular stock offering where anyone can buy. The number of shares you can buy usually depends on how many shares you already own.

How Does It Work?

When a company does a rights issue, it gives shareholders the "right" to buy a certain number of new shares. 

Example:

if the company offers a "1:5" rights issue, you can buy one extra share for every five shares you currently own.

How to Apply for a Rights Issue?

The company will send you details about the rights issue, such as the number of shares you can buy, the price, and the deadline to act.

If you want to participate, you simply need to follow the instructions and pay for the new shares by the deadline as follows.

1. Review the offer document provided by the company.
2. Decide how many shares they wish to purchase (up to their entitlement).
3. Submit an application through the company’s registrar, broker, or online portal, depending on the instructions.
4. Make the payment for the shares by the specified deadline. It’s crucial to act promptly, as rights issues have a limited window for participation, after which unexercised rights may lapse or be sold off by the company.

Benefits for Companies and Shareholders:

For companies:

• It's a way to raise money without borrowing or diluting ownership too much because it's targeted at people who already own shares.

For shareholders:

• The main benefit is that they get to buy shares at a discounted price, which can be a good deal if they think the company will do well in the future. 
• Also, since the offer is based on how much you already own, your ownership percentage in the company stays the same.

What Makes a Company Announce a Rights Issue?

Companies usually do a rights issue because they need money for things such as,

• Expanding the business like buying another company or creating new products.
• Reducing debt or covering losses if they’re in financial trouble. 

Sometimes, a rights issue shows confidence in the company’s future, but if not communicated well, it can make people worry that the company is struggling financially.

How Do I Renounce my Rights?

If you don’t want to buy more shares, the rights expire. This means you give up the chance to buy new shares. You can also inform the company or your broker if you don’t want to participate.

Conclusion

A rights issue is a way for companies to raise funds apart from going FPO and for shareholders to buy more shares at a discount price than the CMP. But as a shareholder, you need to decide whether to buy more shares, sell your rights, or just not participate at all. 

Understanding the process of how rights issues work helps investors make informed decisions and take advantage of opportunities when they arise.

This approach gives companies the money they need without too much debt or new people owning their company while also giving existing investors a chance to buy in at a good price.