(Investor Section) How to sell your rights

With the rebounding of the Nigerian equities market, many quoted companies are beginning to raise fresh capitals through right offers. Aware of the fact that raising funds through public offers would dilute the shares, they have decided to achieve the dream through right issues.

Rights issues are relatively cheaper way of raising capital by firms and the major reason why it was preferred to other fund sourcing options.

A rights issue is when a company issues to its shareholders a right to buy additional shares of the company. The rights offer will comprise a specific number of shares at a specific price within a space of time to buy, usually two weeks and maximum of one month.

The shares are usually offered at a discounted price which is lower than the current market price so as to encourage its shareholders to take the offer. The rights issue’s price represents a substantial discount to the company’s market price. The discount is in line with the traditional view of rights issue as a form of return to shareholders.

The shareholder has an option to either take up the rights offer or reject it. If he takes up the rights, he will pay the subscription price for it. In case a shareholder does not take up the rights issue, then they have the option to sell their rights on the stock market just as they would sell ordinary shares.

Many shareholders do not know that they can sell their rights on the Stock Exchange as you sell ordinary shares. The procedures are the same. See your Stockbroker with your rights circular wherein the number allotted to you is stated and signed transfer form for verification of your mandate. There is a mark-up price for the sale on the bourse as soon as your offers it for sale.

Rights issues are expected to give the company’s financial flexibility and re-organise its capital structure. Sometimes, the net proceeds will be used to reduce the company’s debt as well as to increase the firm’s working capital and for expansion.