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Hi Sir,
Could you please help me to clarify below doubt?
Are the Pre-emption right and Rights issue the same?
If not, what is the differences.As far as I understood both give the right to existing shareholders to be offered a new share issued pro-rata to their existing holding of class of share.
Thanks
Gabbi
Before a company can issue new shares to the public for cash the company must first offer those shares to existing shareholders in the proportion of their existing shareholdings. This is to prevent a shareholder from having their influence in the company eroded by the issue of additional shares to outsiders.
This entitlement (to have new shares offered first to existing shareholders before they can be sold to outsiders) is called a pre-emption right.
A rights issue is where the company has no intention of selling shares to outsiders. The company simply wishes to invite existing shareholders to increase their stake in the company by allowing them the opportunity to buy additional shares in proportion to their existing holding at a discounted price. There is no concept of the company issuing new shares to outsiders
Of course, if the existing shareholders do not wish to take advantage of this offer of discounted shares, they may sell their entitlement to anyone they choose ie to outsiders (or insiders!)
Ok?
Hi Sir,
It is perfectly understood now. Thanks so much for your help and amazing lectures.
Regards
Gabbi
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