What is a Rights Issues? With Real Examples

Alvin Chow
Alvin Chow

Companies can raise money in a few ways. They can borrow from the bank or raise money from existing shareholders through rights issues. They can also issue other debt securities like corporate bonds, warrants etc.

When a company issue rights, the announcement will be something like this, “1 rights share for every 2 ordinary shares at $1”. This means that every shareholder will be entitled 1 rights share for every 2 shares that they owned. The shareholder can choose to subscribe to the rights and pay $1 for each share. At the end of the rights issue, the company will use the proceeds to fund the activity that she has promised to do.

As one of my stocks (Blumont) was involved in a Rights Issue recently, I find it easier to explain the procedure using this example.

(Day 0) 22 Apr 13 – Rights Issue approved during Annual General Meeting (AGM)

The board of directors have to seek approval for the rights issue from the shareholders during the AGM. This is an opportunity for shareholders to ask the reasons for issuing rights and question if there are better funding options. Most importantly, figure out the management’s intent to issue rights. The rights issue was approved during Blumont’s AGM on 22 Apr 13.

(Day 98) 29 Jul 13 – Announcement of Rights Issue

Blumont announced and released the rights issue details. The company set the limit of 861,002,293 additional shares to be converted from the rights. Each rights share will cost $0.05 and each shareholder is entitled to 1 rights share for every two ordinary shares.

The company also added that this is a non-underwritten and renounceable rights issue.

Non-underwritten means that the company has not engaged an investment bank to structure this deal which most companies would do so.

Renounceable and non-renounceable rights

Renounceable rights will be listed on the SGX and shareholders can sell the rights to other investors. These rights will have a separate counter name. In Blumont’s case, they have Blumont R and Blumont R500 (in lots of 500 rights). Non-renounceable rights are not listed on the exchange and hence, these rights cannot be traded. The rights will be converted to ordinary shares and deposited in the CDP account after a certain date if the shareholder subscribes to the issue. Thereafter, the shareholder can choose to sell the additional shares.

(Day 119) 20 Aug 13 – SGX approval-in-principle for the listing of rights

Blumont have successfully sought approval from SGX to list the renounceable rights.

(Day 136) 6 Sep 13 – Announcing Book Closure Date

Blumont announced 23 Sep 13, 5pm, as the deadline for accounting the list of share holders for the rights issue.

(Day 149) 19 Sep 13 – Ex-Rights

Blumont went Ex-Rights on 19 Sep 13.  New buyers of Blumont shares after this date will not be entitled any rights. Shareholders can sell Blumont shares after 19 Sep 13 and still receive the rights in their account.

(Day 155) 25 Sep 13 – Offer Information Sheet (OIS)

OIS will provide details on the trading of the rights shares. Shareholders should pay attention to the important dates like the trading period of the rights.

(Day 156) 26 Sep 13 – Listing of Rights and trading commences

Blumont R and Blumont R500 began trading on 26 Sep 13. These are known as ‘nil-paid’ rights because shareholders have yet to pay for them. Rights holders can sell these rights to other investors.

Usually the share price would drop after a rights issue because there are going to be more shares created. Blumont share price should be about $1.67 after the dilution of shares but it continued to go up to $2.43 on 27 Sep 13. Blumont rights also caught up with the price and listed at a price of $2.10. Considering the rights share only cost $0.05, 4,100% gain for the rights holders! This is an unusual scenario and investors should not take every rights issue as positive news. There must be something valuable about Blumont that shareholders are buying up the shares and the rights.

(Day 164) 4 Oct 13 – Trading of Rights ceases

Blumont R and Blumont R500 cease trading and rights holders are finalised.

(Day 170) 10 Oct 13 – Payment of rights shares

Rights holders to subscribe and pay for the rights shares.

(Day 182) 22 Oct 13 – Crediting and trading of rights shares commences

The rights are converted to shares and credited to the rights holders. The additional shares are traded over the exchange.

Alvin Chow
Alvin Chow
CEO of Dr Wealth. Built a business to empower DIY investors to make better investments. A believer of the Factor-based Investing approach and runs a Multi-Factor Portfolio that taps on the Value, Size, and Profitability Factors. Conducts the flagship Intelligent Investor Immersive program under Dr Wealth. An author of Secrets of Singapore Trading Gurus and Singapore Permanent Portfolio. Featured on various media such as MoneyFM 89.3, Kiss92, Straits Times and Lianhe Zaobao. Given talks at events organised by SGX, DBS, CPF and many others.
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14 thoughts on “What is a Rights Issues? With Real Examples”

  1. Hi Alvin
    I am living in HK and holding some SGX stock in CDP. I never participated in any rights issue subscription and just thinking about how to pay the rights issues if I choose to subscribe without coming to singapore. What are the possible payment methods besides ATM? Possible to pay online such as GIRO, or cheque?


    • Is your address with CDP a foreign one? Because some companies may not offer rights to shareholders with addresses outside of Singapore.

      If you are entitled to the rights, then you should receive a circular with the instructions to tell you how to make payments. ATM and cheques are the usual payment modes.

  2. Hi!

    I just want to ask, what is the difference between rights offering in Singapore & other countries and why are rights offerings preferred in Singapore!

    • I dont think there are much differences. Depends on how complex the offerings can go. Some have attached convertible securities.

      Rights is not preferred. Not even in Singapore!

  3. Hi
    If I am a shareholder and entitled to the rights to buy additional shares, when do I need to inform and buy the additional discounted shares?

    Do I buy my entitled shares during the trading period?

    Can you elaborate what shareholders should or need to do if they intend to exercise the rights? I am concern if I would miss out important dates and any inaction that lead to losses.

    Can shareholders opt only for the shares and decline on the Mandatory Convertible Bonds? Or they have to accept both shares and MCB?

  4. Hi Mr Chow,

    I have a question on purchasing rights issue shares. I bought my REITs through a brokerage account (not linked to my CDP account). If the REIT is issuing rights, may I know how do I go about purchasing the rights issue units. will I be purchasing it through my brokerage account or CDP account?

    Thanks in advance

  5. Hi Mr Chow

    I have a question. Referring to the Blumont example, if I bought 1 rights share at, say $2, in the Trading of Rights period, do I still need to pay $0.05 on top of the $2 to Blumont in order to exercise my rights ?

    Thanks in advance.

  6. Hi Mr Chow,

    I’ve subscribed to some SIA rights and saw that they have been credited into my CDP account. Since these rights are not reflected in my brokerage account (iOCBC), would you be able advise how do I sell them in the future?

    Thank you.


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