Corporate Actions

Rights Issue

A rights issue is when a listed company offers existing shareholders the right to purchase additional new shares at a discounted price, typically in proportion to their current holdings.

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A rights issue is a form of secondary capital raising where a company offers its existing shareholders the right (but not the obligation) to buy newly issued shares at a price that is usually set at a discount to the prevailing market price.

The offer is made in proportion to existing holdings — for example, a "1-for-4 rights issue" means every shareholder can buy one new share for every four they already own. This proportionality is designed to allow shareholders to maintain their percentage ownership in the company without dilution, provided they exercise their rights.

Shareholders who do not wish to subscribe to the new shares can sell their rights in the market (if they are renounceable) during a defined trading window, allowing them to capture some of the value without committing new capital.

Rights issues are announced via the CSE and are subject to SEC approval. They are typically used to fund expansion, reduce debt, or shore up the balance sheet. Whether a rights issue is positive or negative news depends heavily on how the funds will be deployed and the company's track record of capital allocation.

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On the Colombo Stock Exchange

Rights issues on the CSE are publicly disclosed and appear in company announcements. They affect the theoretical ex-rights price (TERP) of the stock and the diluted share count after the offer closes.

Example

You hold 400 shares in a company. A 1-for-4 rights issue at LKR 20 means you have the right to buy 100 additional shares at LKR 20 each, regardless of the current market price.

Related terms

IPO – Initial Public Offering

An IPO is the process by which a private company offers its shares to the public for the first time by listing on a stock exchange.

Bonus Shares

Bonus shares are free additional shares issued to existing shareholders in proportion to their current holdings, funded from the company's retained earnings or reserves.

Share Split

A share split increases the number of outstanding shares by dividing existing shares into multiple new ones, proportionally reducing the share price.

Dividend

A dividend is a portion of a company's profits paid out to shareholders, usually expressed as a fixed amount per share.

Frequently Asked

What is Rights Issue?

A rights issue is when a listed company offers existing shareholders the right to purchase additional new shares at a discounted price, typically in proportion to their current holdings.

How does this apply to the Colombo Stock Exchange?

Rights issues on the CSE are publicly disclosed and appear in company announcements. They affect the theoretical ex-rights price (TERP) of the stock and the diluted share count after the offer closes.

Can you give a practical example?

You hold 400 shares in a company. A 1-for-4 rights issue at LKR 20 means you have the right to buy 100 additional shares at LKR 20 each, regardless of the current market price.