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Knowing Right Issue in Online Trading Term

Rights issue is the right to order a new stock to be issued by the issuer. Rights are granted free of charge and priority to the holders of common stock to order new stock.

The term is to know about the rights issue:
  • Shareholder approval. Rights issue on the basis of approval of the shareholders meeting. Upon approval, the issuer must offer new shares to the shareholders to the first time, in proportion to its ownership (preemptive rights).
  • Purpose. In general, the purpose of rights issue is to raise fresh funds to be used for expansion, repay the loan, or for working capital. Some other goals are to increase the share ownership of the shareholders, or to increase the number of shares outstanding so that more liquid trading.

  • Underwriter, guaranteeing the rights issue proceeds received by the issuer.
  • Standby buyers. Investors who are ready to buy new shares are not sold. Standby buyer can come from shareholders or other investors.
  • Price. Generally the rights issue price lower than market price, it is as an incentive for shareholders. But actually, the price per share of the total shares owned by investors, not to be as low as the price of rights issue. Shareholders would have to adjust the price by adding the value of old stock with new stock value, and then divided by the total number of shares. Price adjustments will show that diluted the market price. That's why the rights issue offer to shareholders in advance.
  • Cum and Ex-date. The rights issue will be offered to investors of record in the Register of Shareholders (DPS) at a given time. That means investors who buy shares at that time, the right to buy shares (cum rights). Meanwhile, investors who hold shares outside of these times, it will not get the right to buy shares (ex-rights), rights and the rights belong to the seller.
Another form of rights issue:
  • Bonus shares. The shares are distributed free of charge to the owner of the old stock.
  • Stock Dividend. Distribution of profits to investors in the issuer's shares.
  • Stock split. Split number of shares which resulted also in solving per-share price.
  • Warrant. A right for investors who owner it, to buy shares at a price and at a specified time, usually 3-5 years.

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