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Discuss what is the right issue to equity shareholders

Discuss what is the right issue to equity shareholders

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Answer #1

When a public company wants to raise additional capital instead of going to the general public to raise the money. It can ask its existing shareholders to buy the new share. These shares are allocated to the existing shareholders based on their current share holding.

Existing shareholders benefit because of a right issue as the shares are sold at somewhat a discount to the current market price. The issuing company will have a lower cost of issuing the share and hence, is also at benefit.

Right issue helps the current shareholder's to increase their holding in the company. Weather this issue will reflect a profit or loss in the shareholder's portfolio depends on the profit and loss account of the company that it is buying the right issue for.

Do let me know in the comment section in case of any doubt.

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