BY PETER EGWUATU

The Companies and Allied Matters Act (CAMA) has provided opportunity for both existing and prospective shareholders of a company to partake in new issues.

By new issues, it means fresh offering/shares by a company inviting the general public to subscribe to its new shares, which will enable it to raise additional capital that would boost its operation.

Also, CAMA allows public companies to issue bonus shares to their shareholders. Therefore, it is the right of a shareholder to benefit from such bonus whenever it is declared.

Like I said last week, many operators have said that the return of retail investors would encourage companies to issue Initial Public Offerings, IPOs, in the very near future.

Many retail investors took part in IPOs during the last market boom .Although some of them got their fingers burnt, many others really reaped significant capital gains. Such investors are eagerly waiting for another round of IPOs in the market. Primary market activities of any capital market remain one of the cardinal fundamentals for gauging investors’ confidence, liquidity and health of the market.

Meanwhile, bonus shares are free shares given to existing shareholders as compensation for their loyalty and support throughout the running of the business.  The bonus shares are paid from the undistributed profit or retained earnings kept by a company over some years of operation.

Any shareholder who is denied of bonus shares whenever declared by a company has the right to seek redress in the court of law.

Another class of share is rights issue. Existing shareholders have the right to partake in rights issue. By rights issue, it means additional new shares created by a company for its existing shareholders. Rights issue is not meant for the general investing public. So, an existing shareholder can either exercise his/her rights or trade it at the secondary market when he or she does not feel like partaking in the offering.

For example, if a shareholder currently owns five per cent of the total shares outstanding and the company decides to double the amount of shares issued through rights issue, a shareholder has the option to exercise his rights and purchase enough shares to maintain his five per cent interest.

If an existing shareholder fails to partake in the rights issue, the company has right to distribute it to other shareholders who might have shown interest. So, it pays the shareholder to take up his/her right even when he or she does not have money to pick it. What the shareholder needs to do is to seek assistance of any registered and licensed stockbroker to help him or her trade the rights at the secondary market on the Nigerian Stock Exchange (NSE).

Ordinarily, rights issues are supposed to be issued at a discount. This means that the price at which the offering is made to the existing shareholders should be less than its current market price at the secondary market.

But in recent times, some companies do not give any discount for rights issue. They have argued that since existing shareholders benefit in bonus shares, they should equally patronize and support their companies to raise additional funds and by so doing, their shareholdings would not be diluted.