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In simple terms, a rights issue is an offer for new shares to existing shareholders in proportion to their current shareholding, for a specified period and at a specified (usually discounted) price.
When a company needs to raise capital it may choose to create a new block of shares and offer them to existing shareholders at a discount. The announcement of a rights issue will often result in the share price falling initially because the market will question the motives of the company if it needs to raise money but also because the new shares issued will 'dilute' the existing shares. The company's objective is to provide current shareholders the opportunity to maintain their percentage of ownership of the firm.
Some companies will be raising cash to fund expansion or acquisitions, and shareholders may be keen to participate in a compelling growth story. Alternatively, funds may be required to 'strengthen balance sheets'. This could mean that existing lenders want some of their money back or the company wants to avoid breaching covenants on existing loans. This might not be as compelling to investors as a growth story, but the reasons are no less logical.
Due to the investment restrictions in other countries, non-resident shareholders may not always be able to participate in a rights issue or be eligible to receive lapsed proceeds.
The eligibility of a shareholder may not be known at the time of writing and any instructions received may be rejected at any time during or after the offer. Nil-paid rights, particularly from overseas rights issues, may have limited or no liquidity and it is not always guaranteed that you will be able to buy or sell these rights.
Due to the short timescales for rights issues we endeavour to communicate with custody clients by post as swiftly as possible and also by email if we hold a valid email address.
If you are a custody client to help speed up communications we recommend that you register an email address with us. Send an e-mail to email@example.com quoting your name and account number.
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To avoid email correspondence from Redmayne-Bentley being blocked by filtering software employed by email programs and providers, add firstname.lastname@example.org to your safe senders list.
Rights Issue Information Sheet (PDF: 279k)
To discuss further please contact your usual Redmayne-Bentley contact, for details visit our branch pages.
If you have not fully subscribed to your ISA for the current tax year you may wish to use your subscription allowance to take up a rights issue complete an ISA application form.
Redmayne-Bentley have High Street branches throughout the UK. Find your nearest branch.