Description
It explains the characteristics, procedures of rights issue
Rights Issue
1
?Rights Issue: It is an issue of capital to
the existing shareholders of the company through a Letter of Offer made in the first instance to the existing shareholder on pro rata basis. Characteristics:?Number of rights share to be issued. ?Rights entitlement. ?Price per share. ?Time period. ?Negotiable.
2
?Procedure for Right Issue:
?Company sends Letter of Offer along with four forms (A,B,C and D) to shareholder. ?Form A: Acceptance ?Form B: Renouncing ?Form C: Application by Renouncee. ?Form D: Request for split forms.
3
?Value of a Share: after the rights issue
(N * Po ) + S N+1 where N = number of existing shares Po = market price per share S = subscription price at which right share is issued
?Value of a Right: after the right issue
N * (Po - S) N+1
4
? Comparison between a Rights Issue and Public Issue
?In comparison with a public issue, rights issue is likely to be more successful
?Floatation costs of a rights issue are significantly lower than public issue. ?Right issue generally has to be made at a lower price than a public issue. This tends to result in a dilution of earnings per share.
5
Thank You
6
doc_124926820.ppt
It explains the characteristics, procedures of rights issue
Rights Issue
1
?Rights Issue: It is an issue of capital to
the existing shareholders of the company through a Letter of Offer made in the first instance to the existing shareholder on pro rata basis. Characteristics:?Number of rights share to be issued. ?Rights entitlement. ?Price per share. ?Time period. ?Negotiable.
2
?Procedure for Right Issue:
?Company sends Letter of Offer along with four forms (A,B,C and D) to shareholder. ?Form A: Acceptance ?Form B: Renouncing ?Form C: Application by Renouncee. ?Form D: Request for split forms.
3
?Value of a Share: after the rights issue
(N * Po ) + S N+1 where N = number of existing shares Po = market price per share S = subscription price at which right share is issued
?Value of a Right: after the right issue
N * (Po - S) N+1
4
? Comparison between a Rights Issue and Public Issue
?In comparison with a public issue, rights issue is likely to be more successful
?Floatation costs of a rights issue are significantly lower than public issue. ?Right issue generally has to be made at a lower price than a public issue. This tends to result in a dilution of earnings per share.
5
Thank You
6
doc_124926820.ppt