Rights Issue Bursa Malaysia: Golden Opportunity or Investor Trap?
•By Mahersaham Team
Artikel ini juga tersedia dalam Bahasa Melayu
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Have you ever been happily checking your stock portfolio, only to suddenly spot an announcement that your favourite company is doing a Rights Issue? For some people, this is great news. For others, it might look like a burden because they need to "top up capital".
Don't panic! A Rights Issue is nothing out of the ordinary on Bursa Malaysia. In fact, if you understand how it works, you can turn the situation into a smart investment strategy.
In this article, we will thoroughly dissect what a Rights Issue is, why it happens, and what action is most profitable for you as an investor.
Technically, a Rights Issue is a process where a listed company offers additional shares to its existing shareholders.
Put simply, imagine your favourite company is holding a warehouse sale. But this sale is exclusively for members (shareholders) only. The company gives you the "right" to buy new shares at a price that is usually much cheaper than the current market price.
Borrowing from a bank means the company has to pay interest. With a Rights Issue, the company receives fresh capital directly from investors without having to worry about monthly interest commitments.
Not all Rights Issues are the same. We need to look at the purpose behind the fundraising:
When reading announcements on the Bursa Malaysia website, you will come across these terms:
When new shares are issued at a cheap price, the market price of the stock will automatically undergo an adjustment (usually downward). This new price is called the Theoretical Ex-Rights Price (TERP).
Don't worry, let's look at the simple formula:
TERP = ((N x Old Price) + (R x Issue Price)) / (N + R)
Example Scenario:
TERP = ((1 x 1.00) + (1 x 0.50)) / (1 + 1) = 1.50 / 2 = RM0.75
So, after the ex-date, the share price on your screen will change from RM1.00 to around RM0.75. Don't be shocked!
When you receive a Rights Issue notification, you have three paths:
You pay additional capital and receive the new shares.
If you don't have the capital to top up, you can sell your "rights" (usually the stock code ends with -OR) on the open market within a limited period.
If you do nothing, your parent share price will drop (due to price adjustment), but you won't receive new shares and you won't get any cash from selling the rights.
If you want to learn more about other corporate exercises such as bonus issues, share splits, share consolidation and many more, read:
Complete Guide to Corporate Exercises on Bursa Malaysia: What Investors Need to Know
One thing investors worry about is Dilution.
When the total number of shares in the market increases, earnings per share (EPS) will shrink slightly. However, if the capital raised successfully generates manifold profits in the future, this dilution is only temporary.
Pro Tip: Always check the annual report or Rights Issue prospectus. Look at the "Use of Proceeds" section. If 80% of the funds are going towards paying off bad debts, you might want to think twice.
These days it's easy — you no longer need to post physical forms to the Share Registrar.
A Rights Issue is not something to be feared if you have the right knowledge. It is a neutral corporate tool. What determines whether it is "good" or "bad" is the company's fundamentals and how they use your money.
As a smart investor, the best choice is usually to either Subscribe (if the company is good) or Sell Your Rights (if you don't have the capital). Never let your rights lapse for nothing!
However, as a Muslim investor, do not forget to weigh the Shariah compliance status of the stock before making your decision.
Why not start learning and investing in stocks on Bursa Malaysia yourself? If you are still a complete beginner and don't know how to start, you can begin by opening a CDS account under Mahersaham. Tuan Maher is a registered dealer's representative under Broker Mplus.
If you are interested in opening a CDS account, click: OPEN CDS ACCOUNT
A Rights Issue is a corporate exercise where a listed company offers additional new shares to its existing shareholders at a discounted price. Shareholders receive the "right" to purchase these new shares in proportion to their current holdings.
No, it is not compulsory. You have three options: subscribe fully, sell your rights on the open market (the -OR counter), or ignore them entirely. However, ignoring your rights means you lose value for nothing, so it is generally advisable to either subscribe or sell.
TERP stands for Theoretical Ex-Rights Price. When new shares are issued at a discount, the market price adjusts downward to reflect the blended average of old and new shares. This is a normal mathematical adjustment, not an actual loss if you have subscribed.
You can subscribe digitally through portals such as TIIH Online (Tricor) or e-Portal (Boardroom). Some local bank ATMs also support Rights Issue payments. You will receive notification via email or letter with full instructions.
It depends on the company's fundamentals and how they plan to use the funds raised. If the proceeds are used for growth and expansion, it can be positive. If most of the funds go towards paying off bad debts, investors should be cautious.