Key Terms in Rights Issue

This chapter explains these terms in simple, investor-friendly language, so you can read announcements, apply confidently, and make smart decisions during a rights issue.

Rights Entitlement (RE)

Rights Entitlement (RE) is not a share. It is a temporary credit added to the shareholder’s demat account when a company announces a rights issue.

These REs represent the right (but not the obligation) to apply for additional shares at a discounted price. They are credited to shareholders in proportion to their existing holdings as of the record date.

Example: If the company announces a rights issue in the ratio of 1:4, you’ll receive 1 Rights Entitlement for every 4 shares you hold.

Shareholders can choose to:

• Use the RE to apply for rights shares, or
• Sell/transfer the RE to another investor (if the issue is renounceable).

Note: Rights Entitlements are temporary and expire once the issue closes if not used or sold. They do not represent ownership in the company.

Record Date for Rights Issue

The record date is the cut-off date set by the company to determine which shareholders are eligible to receive Rights Entitlements (REs).

Only shareholders who hold shares on the record date are entitled to receive REs. The company announces the record date in advance through the Letter of Offer and stock exchange notifications.

Example: If the record date is 10th August, you must hold the shares in your demat account on or before 10th August to be eligible. Selling your shares before this date will make you ineligible, even if you bought them earlier.

Rights Entitlement Credit Date

The RE credit date is the date when the Rights Entitlements (REs) — which are temporary credits, not shares — are added to eligible shareholders’ demat accounts.

This usually happens a few days/a day before the rights issue opens. The REs are visible in your demat account under a separate ISIN, for example, ABC-RE.

Note: These REs represent your right to apply for new shares at the issue price or to sell/transfer them if the issue is renounceable. They do not represent ownership until you subscribe and shares are allotted.

Rights Shares Credit Date

The "credit date" for rights shares is the date on which the newly allotted shares are credited to an eligible shareholder's demat account, typically after the issue closing date. This process occurs after the company finalises the allotment and informs the depository. 

Renunciation Period

The Renunciation Period is the time during which eligible shareholders can sell or transfer their Rights Entitlements (REs) to another investor.

It begins when the rights issue opens and ends a few days before the closing date, allowing the buyer time to apply for the shares.

Renunciation can happen in two ways:

• On-Market Renunciation: Selling REs through the stock exchange like normal shares.
• Off-Market Renunciation: Privately transferring REs to another person (friend, relative, etc.) through your Depository Participant (DP).

The same ratio of entitlement applies to renunciation — you can sell or transfer all or part of the REs credited in that ratio. Once the renunciation period ends, REs can no longer be traded or transferred.

Terms of Payment for Rights Issue

Companies can collect payment from investors in one of two ways:

• Full Payment at Application:

Shareholders pay the entire issue price upfront.

Example: If the issue price is ₹1.75, the full ₹1.75 per share must be paid at the time of application.

• On Call Money Basis:

Shareholders pay a part of the issue price at application and the remaining balance later, when the company announces the call(s).

Example: If the issue price is ₹8.50, ₹4.25 may be payable on application and ₹4.25 later when called by the company.

The company must collect all outstanding call money within 12 months from the date of allotment.

Letter of Offer

The Letter of Offer (LOF) is the official document filed with SEBI and sent to shareholders. It explains all important details such as:

• Purpose of the issue
• Record date and entitlement ratio
• Issue price and payment terms
• Timelines and procedures
• Risk factors and financial details

The investors should always read and understand the LOF carefully before applying.

Ratio of Rights Issue

The rights issue ratio determines how many Rights Entitlements (REs) a shareholder receives based on their existing shareholding. Each RE gives the shareholder the right to apply for one new share at the issue price.

Example: If the rights issue ratio is 2:5, it means a shareholder will receive 2 REs for every 5 shares held, giving them the right to apply for 2 new shares at the issue price.

In short, the ratio shows how many Rights Entitlements are credited to a shareholder’s demat account, which in turn reflects how many new shares they can subscribe to in the rights issue.

Rights Issue Price

The issue price is the price at which the company offers new shares to eligible shareholders.

It is usually lower than the current market price, making it a cost-effective opportunity for existing investors.

Rights Issue Period

The issue period is the window during which investors can apply for rights shares or trade their REs.

A rights issue remains open for a minimum of 7 days and a maximum of 30 days. This is the period during which eligible shareholders can apply for shares, sell, or renounce their Rights Entitlements (REs).

It is important to apply or act on your REs within this window. Once the issue closes, any unexercised or unsold REs will expire and become worthless.

Rights Issue Allotment

After the issue closes, the company allots shares to those who applied. The new shares are credited to the investors’ demat accounts, and trading usually starts soon after allotment.

Date of Allotment:

The "Date of Allotment" for a rights issue is the specific date by which the company officially allocates the new shares to shareholders who have applied. The company determines this date and typically provides it in the offer document or timetable for the rights issue.

• It is the date on which the allotment of new shares is deemed to have occurred.
• The deemed date of allotment occurs after the issue closes, when the rights shares are officially allotted and credited to shareholders' accounts.
• You can find the specific deemed date of allotment in the issue's official documents, often called the "Letter of Offer," and in the issue's timetable published on financial news websites or the company's own site.

Key Takeaways

• REs are not shares; they are temporary credits giving the right to apply for shares.
• Record Date determines who gets REs.
• RE Credit Date is the date on which REs become visible in your demat account.
• Renunciation Period allows REs to be sold or transferred.
• Terms of Payment can be complete or in parts (call money).
• Letter of Offer is the official document with all details.
• Issue Ratio shows how many REs are credited per share held.
• Issue Period defines when to act, and allotment finalizes share ownership.