The Board of Directors at its meeting held today i.e.October 31, 2009 has fixed Rs.6/- per equity share as the issue price for the proposed Rights Issue of Equity shares. The details of the issue are as under: (1) Size of the Issue: Rs. 4800 Lakhs. (2) Price: Rs.6/- (i.e. Re.1/- towards face value and Rs.5/- towards premium per equity share). (3) Ratio: 1:4 (one equity share for every four share held as on the record date) (4) No. of equity shares: 8,00,00,000".
For information& to avail the Rights
with regards
rvk41
i have some queries , some experience person plz reply TIA ;-)
1)are retail investor also eligible for this right issue ?
2)how can they apply thought there demat account ( i have icici direct for xample )
3)what is the first payement mentioned in the notice i.e. 0.5+2.5=3rs per share ?
Source: Google.
In this article we try to throw some light on the `rights issue.` This method helps the company to raise additional capital from shareholders and is generally given effect to in times of firm stock market trends when stock prices are ruling relatively strong.
Rights issue:
A rights issue is basically when a company offers existing shareholders a right to purchase additional shares of the company at a given price, which is at a discount to the prevailing market price of the stock, to make the offer enticing for the shareholder and to ensure that the rights offer is fully subscribed to.
It must be noted that in case of a rights issue, a shareholder has the option of applying for additional shares also i.e. over and above what he is entitled to. Thus, assuming that some of the shareholders do not exercise their right, the shareholders who have applied for additional shares are allotted the same.
Since, in the case of a rights issue, additional equity is issued, the issuing company`s equity base rises to the extent of the issue. Thus, considering that the number of equity shares of the company has increased, there is a proportionate fall in the stock price of the company reflecting the new adjusted earnings per share (EPS).
Here, unlike a stock split, the face value of the stock remains unaltered. Further, the market capitalisation of the stock also remains unchanged as the stock price adjusts (as per the valuation accorded to the stock) to the new EPS. Let us see with an example how the two parties (investor & company) involved are affected.
An investor: Mr. A had 100 shares of company X at a face value of Rs 10 per share and a total investment of Rs 10,000, assuming he purchased the shares at Rs 100 per share.
Assuming a 1:1 rights issue at an offer price of Rs 50, Mr. A will have the option to subscribe to additional 100 shares of the company at the offer price. Now, if he exercises his option, he would have to pay an additional Rs 5,000 in order to acquire the shares, thus effectively bringing his average cost of acquisition for the 200 shares to Rs 75 per share.
However, since the price on the stock markets would reflect the new price (Rs 50), the investor is actually at a loss of Rs 5,000 (200 shares x Rs 25 per share).
The company: Company X had 100 m outstanding shares of face value Rs 10 each. The share price currently being quoted on the stock exchanges is Rs 100 thus the market capitalization of the stock would be Rs 10 billion (outstanding shares x share price).
Further, post the rights issue the company`s outstanding shares would increase to 200 million with no change in the face value. Also, there would be no change in the market capitalisation of the stock, as with double the equity shares outstanding, the EPS and consequently the stock price would reduce by half.
Thus, the market capitalisation would remain at Rs 100 billion (200 million outstanding shares x Rs 50 per share).
Why the process of rights issue?
The basic premise of carrying out rights offers is to raise additional capital. The company raises money from its existing shareholders, who have seemingly posed their faith in the company by virtue of being its shareholders, to invest in expanding capacities or to explore other investment opportunities.
This (additional capital) in turn provides the company better leveraging opportunities. A higher equity capital base would assist the company to raise higher debt. This is because a company`s debt-to-equity ratio would stand reduced, putting the company in a comfortable position to raise further debt from the market.
While some may argue here that the company`s return on equity (ROE) would get adversely affected and it would be wise to raise debt from the markets at competitive costs without leveraging on additional equity raised from shareholders, the former argument (debt-equity) cannot be discarded.
this article says ....
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An investor: Mr. A had 100 shares of company X at a face value of Rs 10 per share and a total investment of Rs 10,000, assuming he purchased the shares at Rs 100 per share.
Assuming a 1:1 rights issue at an offer price of Rs 50, Mr. A will have the option to subscribe to additional 100 shares of the company at the offer price. Now, if he exercises his option, he would have to pay an additional Rs 5,000 in order to acquire the shares, thus effectively bringing his average cost of acquisition for the 200 shares to Rs 75 per share.
However, since the price on the stock markets would reflect the new price (Rs 50), the investor is actually at a loss of Rs 5,000 (200 shares x Rs 25 per share).
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but i dont think that its final price will get adjusted to the offer price of right issue ....
some expert plz comment immediately ...
according to this final price of cityunion will get adjusted to rs6 aprox....dont think its right ...
I do not know why all complications. 4 shares at the resent price of Rs 27 =104 plus right @Rs 5 =109 for 5 shares; so each share is supposed to quote at Rs 21.80. However unless there is fear of income not increasing, the share price will continue at Rs 26, 27 or even more based on the market and other factors like bankk expanding or being supported by FII
On purchasing CUB at Rs.27/ before 12 Nov , he will get four shares at Rs.6/- So the cost of acquisition goes to Rs.51/ for five shares . One share will cost him Rs.10.25 or little less than Rs.11.00 per share.
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