Rights issue (paid capital increase)
Key points
- The proceeds go to debt repayment, investment or working capital.
- A rights issue signals a need for cash; it is neutral when used to cut debt and can be positive when funding growth.
- companies that repeatedly raise capital may have weak cash generation.
Formula / calculation
a 50% rights issue at 1 TL nominal means one new share can be bought for 1 TL for every two shares held. Theoretical new price = (Old price + Rights ratio × Subscription price) / (1 + Rights ratio). Shareholders who do not subscribe are diluted.
Interpretation
A rights issue signals a need for cash; it is neutral when used to cut debt and can be positive when funding growth. Shareholders who do not want to subscribe can sell their rights on the exchange as rights coupons.
Pitfalls
companies that repeatedly raise capital may have weak cash generation. When the subscription price is far below market, the price adjustment is large. Unlike a bonus issue it asks shareholders for money; those who do not pay lose ownership share.
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Frequently asked questions
What is Rights issue (paid capital increase)?
A rights issue raises cash from existing shareholders by offering them new shares at a set price.
How is Rights issue (paid capital increase) calculated?
a 50% rights issue at 1 TL nominal means one new share can be bought for 1 TL for every two shares held. Theoretical new price = (Old price + Rights ratio × Subscription price) / (1 + Rights ratio). Shareholders who do not subscribe are diluted.
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