What is a rights issue? What impact will it have on your current shares?

On June 9, 2020, the Hong Kong Stock Exchange announced at noon that it would propose a capital restructuring of 39 billion Hong Kong dollars, including the operation of a rights issue.Specifically, the proposed rights issue record date is for every eleven shares held, existing shareholders will be entitled to subscribe for seven shares at a rights issue price of 4.68 Hong Kong dollars to subscribe for 2,503,355,631 shares, raising a total amount of approximately 11.7 billion Hong Kong dollars.

I believe many mooers will have many questions about rights issues, so what exactly is a rights issue? What impact will the rights issue have?

A rights issue refers toListed companyIssuance of new sharesStocksLet existingShareholderSubscription, shareholders can subscribe for new stocks according to their shareholding ratio.

Introduction

Rights issue means that a company issues new shares to existing shareholders to subscribe according to their shareholding ratio. If shareholders do not participate in the rights issue, their equity will be 'diluted'.

For example, a company using the method of A offering to B to issue new shares, means that existing shareholders holding every A shares of old stocks, will have the right to purchase multiple B shares of new stocks.

'Rights issue' (Rights issue) means that major shareholders ask for money from small shareholders, specifying how much money small shareholders need to subscribe for how many new shares based on their shareholding. There is an ex-rights date for the rights issue, on this day the 'rights issue entitlement' will be deducted from the stock price, so the stock price will experience a certain decline, and stocks purchased on or after this day do not need to participate in the rights issue. Stocks purchased before the ex-rights date can obtain the 'rights issue entitlement'. If you do not want to participate in the rights issue, you can sell the rights issue entitlement to others for subscription, but if the rights issue price is higher than the market price, often no one will buy these rights issue entitlements, so the stock price will drop again. However, participation in the rights issue is not mandatory, so even if you cannot sell the rights issue entitlement, you can choose not to participate. If the rights issue price is lower than the market price, small shareholders will often gladly participate in the rights issue; in addition to the specified number of rights issue shares, you can also apply for additional subscription, but it is not guaranteed that you will receive them.

For example, a company that has issued 100 shares playing for additional shares, with a 10-for-1 offer.

Before the rights issue

100/100 = Each share represents 1% of the company

After the rights issue

100/110 = Each share represents 0.9091 of the company

Essentially, rights issue means a company issuing new shares, allowing existing shareholders to subscribe for new shares in proportion to their holdings. Whenever a listed company needs funds, such as intending to raise funds to repay debt, expand its business, engage in mergers and acquisitions, or strengthen its capital, it can request existing shareholders to participate in a rights issue for fundraising. In order to attract shareholders to participate in the rights issue, the issue price is often lower than the current share price.

Reasons for rights issue

CompanyThe reason for issuing new shares for capital raising is usually for new investments or debt reduction. If a company has sufficient reasons to issue new shares, such as for new investments that are expected to increase the company's profitability, then issuing new shares may not necessarily be a bad thing, as after issuing new shares, the company's profitability will increase due to the new investments, which can have support, and even cause the stock price to rise. stock priceHowever, generally issuing new shares is seen as a negative corporate action because it requires small shareholders to make additional investments, but not all shareholders are willing to make more investments. Therefore, when a company announces a new share issuance, existing

shareholders may view it as a negative corporate action because it requires small shareholders to make additional investments, but not all shareholders are willing to make more investments. So, when a company declares a new share issuance, existing shareholders may not be willing to participate voluntarily.Retail investorsHowever, generally issuing new shares is seen as a negative corporate action because it requires small shareholders to make additional investments, but not all shareholders are willing to make more investments. So, when a company announces a new share issuance, existing shareholders may not be willing to participate voluntarily.Invest However, generally issuing new shares is viewed as a negative corporate action because it requires small shareholders to make additional investments, but not all shareholders are willing to make more investments. So, when a company declares a new share issuance, existing shareholdersShareholders' meetingWhen receiving rights issue, it is called pre-emption rights. If a shareholder does not want to take up the rights issue, they can waive this right or sell these rights for cash on the market.市场These rights can be traded on the Stock Exchange, but they have a short lifespan, usually only lasting one to two weeks. Typically, companies lower the rights issue price to attract shareholders to take up the rights, offering a discount compared to the regular stock price. However, this may put pressure on the stock price, in addition to diluting earnings per share, which is why most retail investors do not like rights issues.new sharesdilute the companyearnings per shareare diluted, no wonder most retail investors do not like rights issues.

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