What Happens in a Rights Issue?

A rights issue is an optional offer of additional shares made to existing shareholders when a company wants to raise funds — usually for expansion, debt repayment, or working capital. These shares are offered at a discounted price for a limited period, giving existing shareholders the first opportunity to buy more before the public.

Here’s what typically happens:

• Each existing shareholder receives a proportionate entitlement to buy additional shares (e.g., 1 new share for every 5 held).
• Shareholders can subscribe fully, partly, sell (renounce), or let the offer lapse — since participation is voluntary.
• If shareholders don’t subscribe, their rights expire after the issue closes.
• The subscription period usually lasts between 16 to 30 days.
• The company receives fresh capital once the shares are allotted.
• After allotment, the market price adjusts to reflect the additional shares issued (known as price dilution).

In a rights issue, existing shareholders get preferential treatment — meaning they are prioritized over new investors for this offer.