What is Rights Issue?
A rights issue is an offering in which existing shareholders are given the right, but not the obligation, to buy additional shares in proportion to their existing holdings, usually at a discount to the market price. Under IFRS, the new shares issued are recognized in equity at their issue price.
How It Works
- Determine the rights ratio (e.g., 1 new share for every 5 held).
- Set a subscription price, typically below market price.
- Offer rights to existing shareholders during the subscription period.
- Issue new shares to those who exercise their rights and increase equity.
Saudi Context
Saudi listed companies use rights issues to raise capital while protecting existing shareholders from dilution; CMA must approve the prospectus and timeline.
Example
A company with 100 million shares issues a 1-for-5 rights issue at SAR 20 per share. If all rights are exercised, it raises SAR 400 million and increases shares outstanding to 120 million.