First and foremost, what is a Rights Issue? A Rights Issue is an offer to existing shareholders to purchase additional shares in a company during the company’s issue of new shares to raise additional capital.

So the company will publish a notice of the Rights Issue in at least two (2) national daily newspapers. Also, the company’s registrar will send a copy of the SEC (Securities and Exchange Commission) approved Rights circular to all existing shareholders, informing them of the Rights offer not less than twenty one (21) days before the opening of the Rights offer.

Presidential Adviser on Legislative Matters, Hon. Sumaila Kawu (l) discussing with Director, Hydrate Resources, Prince Henry Adesanya on preparations for a Forum tagged Nigeria: Investors Destination as part of the side events organised as Nigeria participates in the 71st General Assembly of the United Nations in New York, USA. Photo by Abayomi Adeshida 17/09/2016

The company issuing the new shares usually ask its shareholders to subscribe to the shares usually made in proportion to their existing holdings; allowing them to buy the newly issued shares at a fixed price, usually at a discount to the market value of the shares being traded at the Nigerian Stock Exchange, NSE , within a specific subscription period.

A Rights issue is therefore one of the ways by which a listed company can raise funds from its existing shareholders. If an existing shareholder does not want to partake in the Rights Issue, the person can either ignore or sell the shares on the floor of the Exchange to either an existing shareholder or new shareholder through the engagement of a stockbroker.

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The shareholder can take up the Rights Issue in full, and pay the relevant Rights price to the company issuing the new shares, or trade the entirety of the Rights to existing shareholders or other interested investors; the shareholder can equally take up part of the Rights for himself, and trade the rest.  If the shareholder chooses not to partake, he will ignore and let the Rights expire.

As the Rights issued to existing shareholders have some value, the trading of the Rights compensates the shareholders for any future dilution of their current holdings in the company.

Therefore, Rights Issue is tradable on the floor of the NSE from the Rights Issue opening date to the closing date.

For a shareholder to trade its Rights under the electronic trading system, the person will approach a registered stockbroker who will trade the share on the Exchange at the prevailing market price. The difference between the offer price and the market price at the Exchange is the gain that the existing shareholders get

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