In stock-market investing, what does a rights issue give existing shareholders?

In stock-market investing, a rights issue gives existing shareholders the right to buy new shares, usually at a specified price.

Companies use rights issues to raise equity capital. Eligible shareholders receive rights in proportion to their existing holdings, allowing them to preserve roughly the same ownership percentage if they purchase the offered shares. The subscription price is often below the prevailing market price to encourage participation.

Rights may be transferable or non-transferable, depending on the offering’s terms. In a transferable issue, a shareholder who does not want to invest more money may sell the rights in the market, if trading is available. If the rights expire unused, the investor can face dilution because more shares have been issued.

A rights issue is different from a bonus issue, which distributes additional shares without requiring payment. The exact deadlines, ratio, and price are stated in the company’s offer documents.