What is a rights issue?
A rights issue is a type of corporate action. In order to raise money, a company may offer its existing shareholders the right to buy new shares at a discount to the market price.
The more shares you already hold, the more new shares you’ll have the right to buy. For example, let's say you own 400 shares in a company, and you're offered the right to buy one share for every five you own. That means you could buy 80 new shares. And as these shares are offered at £1.20 each – rather than the market price of £2 – you can buy them for a total of £96 (a discount of £64).
As a shareholder you typically have four options when a rights offer is issued:
- Take up the rights in full – by paying the discounted price of the shares, and increasing your holding in the company. There are no dealing charges or stamp duty payable when you take up shares in a rights issue.
- Sell all of your rights – you can choose to sell the right to purchase new shares at a discount. These are traded on the market as ‘nil paid shares’
- Take up part of the rights and sell the balance – this could involve selling some of the rights offered to cover the cost of taking up the remaining rights (often known as ‘tail swallowing’)
- Do nothing – your rights will be sold in the market at the best available price, and the proceeds (after charges) paid to you. These are known as ‘Lapsed Proceeds’.
If a company you hold shares in announces a rights issue, we'll send you a secure message. This will explain your entitlement, the cost involved, and how to confirm your chosen option. We’ll also let you know the deadline for when you need to make a decision.
You can read your secure messages by logging in and in the ‘My account’ menu, clicking 'Secure messages'.
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