Signz... Rights Issue

Right Issue

This post will be to explain the Rights Issue process and the various components of it that I had experienced.

A Rights Issue is a way to obtain capital from investor by issuing new shares at a discount to current share prices, about 45% region. It by-passes loaning from banks and avoids interest repayment.

So after a Rights Issue is announced, the word CR appears beside the counter. It means 'Cum Right' meaning that buying the share, sometime later the rights issue will commence.

What does a Right Issue do to share prices? Well after the Excute date of the rights issue, XR, the share price immediately falls to accomodate the dilution effect of having more issued shares.

Imagine a company has value of $1 and issued only 1 share. Hence the Net Asset Value (NAV) of the share is $1 / 1 share = $1 per share. If the company comes up with a right issue of 1 for 1. It means for 1 lot of share owned by you, you get 1 right share. In effect it means now a share NAV is $1 / 2 shares =$0.50 per share.

SO if you do not take up the Right Issue, you will face dilution of your shares. So you are allocated a certain number of units based on your current share holdings. If you take up, it ensures your holdings is not diluted but it meant you have to top up more capital. That's the deal.
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Nil Right

Also one more thing I learnt today, crap going to be an expensive lesson cos I went and bought 1 nil Right only to learn later that its not what I think it is. Only managed to ask my Dad after I just bought it....

Basically after the Right Issue is executed. The nil Rights are distinct from its Mother share. So if I do not want to exercise this nil Right, I can choose to sell this nil 'Right' to buy a Right share. So if I buy it, it means I have bought an extra 'Right' to buy another Right share. So if I have a very short period of 1 week to get rid of it or face losses. Since I bought a nil Right. It meant by the end of next week, I have to exercise it to buy the Right share or let it lapse and lose the money I paid for it. Damn. I should have asked my dad before I go itchy finger.
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Hopefully today's strong showing in the sg stock market can continue next week. Many lost opportunities due to lack of extra capital and being overinvested. But at least its not so red anymore. Hopefully things go up from now.