s77 said:
Hi,
Hindalco is coming up with rights issue. I have 50 shares of Hindalco.. so I am eligible, but I am not sure what's the mechanism to apply for rights issue?
Can one apply directly on broker website (e.g. icicidirect) just like an IPO..
s77
Hindalco has announced the Right Issue in ratio 1:4. Offer Price is Rs.96. You eligible for this if you the shares in your account on record date ie. on 28th November 2005.
You will be sent a letter for rights issue. You will have the option to subscribe to additional 12 shares(if you have 50) of the company at the offer price. Now, if you exercise the option, he would have to pay an additional Rs 1152( Rs 96 X 12 shares) in order to acquire the shares.
Let me quote few basics on Rights Issue
A rights issue is basically when a company offers existing shareholders a right to purchase additional shares of the company at a given price, which is at a discount to the prevailing market price of the stock, to make the offer enticing for the shareholder and to ensure that the rights offer is fully subscribed to.
It must be noted that in case of a rights issue, a shareholder has the option of applying for additional shares also i.e. over and above what he is entitled to. Thus, assuming that some of the shareholders do not exercise their right, the shareholders who have applied for additional shares are allotted the same.
Since, in the case of a rights issue, additional equity is issued, the issuing company's equity base rises to the extent of the issue. Thus, considering that the number of equity shares of the company has increased, there is a proportionate fall in the stock price of the company reflecting the new adjusted earnings per share (EPS).
Here, unlike a stock split, the face value of the stock remains unaltered. Further, the market capitalisation of the stock also remains unchanged as the stock price adjusts (as per the valuation accorded to the stock) to the new EPS.