What is a rights issue?

A rights issue gives investors who already hold shares in a company the right to buy additional shares in a fixed proportion to their existing holding.

A rights issue is one of the ways in which listed companies (those which have already gone public) raise new money via the stock market. It gives any investors who already hold shares in the company the right – but not the obligation – to buy additional shares in proportion to their existing holding. This is so that their existing holding in the company is not “diluted” – they will still own the same-sized chunk of the company as long as they take up their rights.

For example, say you already own 100 shares in a company out of a total of 1,000 (so 10%). You are then offered further shares on a "one for ten" basis. This means a total of another 100 shares are to be issued and you have the right to buy ten of them (one for every ten you own), bringing your holding to 110 shares, but leaving your stake in the firm at 10%.

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