Right Issue Chronology: What Actually Happens
•By Maher Saham
Artikel ini juga tersedia dalam Bahasa Melayu
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A right issue is a form of corporate exercise carried out by a company listed on Bursa Malaysia.
Its purpose is to raise additional capital for the company.
Existing shareholders who hold the stock can purchase (subscribe to) the right issue at a discounted offer price.
Shareholders also have the option to subscribe to the right issue or not, depending on their own decision.
A right issue occurs due to several reasons, namely:
If you hold shares in a company that conducts a right issue, you will receive a letter to your address called the ''Right Subscription Form'' containing details of the company''s activities, plans, and financial position for the purpose of expanding their business.
From there, you can decide whether you agree to subscribe or not.
The Ex-Date is the deadline to qualify yourself for the company''s right issue offer.
For example, company ABC announces an Ex-Date for the right issue on 3 July 2021.
You purchase ABC shares on 1 July 2021.
If you hold the shares until 3 July 2021, you are considered eligible to receive ABC-OR, and it will appear in your portfolio as ABC-OR.
When a right issue occurs, the mother share price typically falls to the level of the right issue price.
The conversion ratio is the right issue ratio used to calculate the number of share units that an eligible shareholder will receive.
For example, company ABC announces a conversion ratio of 2:5. This means for every 5 units of shares held, you will receive 2 units of right issue shares.
For instance, you hold 10,000 units of ABC shares.
The calculation for the right issue is: 10,000 / 5 x 2 = 4,000 units of ABC-OR.
So in your portfolio, you will see ABC-OR = 4,000 units and Mother Share ABC = 10,000 units.
Some right issues also come with free warrants. In such cases, you may also see warrant ABC appear in your portfolio, depending on what was announced during the right issue.
Here are 4 case study examples to determine your eligibility for a right issue.
To understand what actually happens during a right issue, you can refer to the chronology diagram above.
First, if you buy ABC shares before the Ex-Date, then sell on the Ex-Date or continue to hold, you are eligible for the right issue.
If you are eligible, you will see ABC-OR appear in your portfolio.
You have the option to sell ABC-OR as you would normally, or leave it until it expires.
After it expires, you are given the choice to subscribe or not. If you wish to subscribe, you need to pay for the ABC-OR units you received at the announced price. That is the amount you need to pay for the right issue.
If you choose not to subscribe to the right issue, that is also perfectly fine. It depends on whether you find it worthwhile or not.
Some right issues also come with free warrants. If free warrants are included, you will receive them in your portfolio after subscribing to the right issue.
A right issue is a corporate exercise by a company listed on Bursa Malaysia to raise additional capital. Existing shareholders are given the right to purchase new shares at a price that is usually lower than the market price.
No, it is not compulsory. The decision to subscribe to a right issue is entirely up to you. You can choose to subscribe, sell the rights in the market, or simply let them expire.
ABC-OR is the right issue symbol that will appear automatically in your CDS portfolio. OR stands for Offer Right. You can sell ABC-OR in the market or wait until it expires to subscribe.
Not necessarily. Some right issues come with free warrants as an additional incentive, but it depends on the terms set by the company. Check the company''s prospectus for detailed information.
The decision to subscribe to a right issue is in your hands. Make sure you calculate the additional capital required and the potential returns before making your decision.
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