A rights issue is a fundraising method where a company offers new shares to its existing shareholders at a discounted price, in proportion to their current holding, before offering them to outside investors. Existing holders can either subscribe (buy) to maintain their percentage, or let the right lapse (and be diluted).
Rights issue vs ASBA vs FPO
Rights issues are different from a public FPO: they are offered only to existing shareholders, usually at a larger discount, and rights can be traded on exchanges (for listed companies) or transferred privately (for unlisted).
Why it matters for unlisted shares
An unlisted company conducting a rights issue is raising capital from its own shareholders. As a holder, you face a choice:
- Subscribe: Pay the discounted price, maintain your percentage, avoid dilution
- Lapse: Don't pay, accept dilution — your stake percentage falls but you keep your cash
The "theoretical ex-rights price" (TERP) after a rights issue adjusts for the dilution — your holding's value per share will drop even if you subscribe, but the total value is maintained.
Example: An unlisted NBFC did a 1:5 rights issue at ₹150/share while the prevailing secondary price was ₹200 — existing holders who subscribed got a 25% discount to market.