azhar9, on Aug 23 2006, 06:43 AM, said:
What is the difference among ordinary and the right shares? I mean what make the price difference? like BAFL share around 40 and the right shares around 20?
Kindly update the knowlege about Right shares...
What are right shares?
A rights share is an issuance of new shares to existing shareholders. These are not free however they are usually below the current market price. Issuance of these new shares to existing shareholders is known as Right shares.
Why does a Company issues Right Shares?
A rights issue occurs when a company needs to raise extra capital or a company requires liquidity.
How many shares will you get?
If you have 1000 shares of a certain company which announces 25 % rights then you will receive 250 Right shares.
Can these right shares be converted into ordinary shares?
Yes, you may feel free to convert them to ordinary shares.
Procedure to convert the Right shares into ordinary shares
If a customer is eligible for the right shares, he/she will receive a Right allotment letter at his/her mailing address from the company/registrar.
The customer will then be required to deposit the Right allotment letter to his/her Bank (if the right are in the name of the customer, then the same will be directly subscribed. Or else if the rights are not in the customer’s name, then it must be verified by the company/registrar).
The Bank will debit the amount against the subscription of the right shares from the bank account.
When to or when not to subscribe your right shares?
The under stated scenario will help you to decide, whether to subscribe your right shares or sell them in the market. Remember, you may always buy more right shares from the market if required.
Example.
You receive a right share of XYZ and the market price for that right share is Rs.3.00 per share. If you wish, you may sell the rights in the market.
But if you subscribe the right share at Rs.10 per share, and if the market price of ordinary XYZ is 15.00 and you sell it after the conversion, then you have a benefit of Rs.5.00 per share.
NOTE: If the company’s ordinary shares are traded in the market below the par value and the company offers the right at the rate of par value, then ordinary shares are usually purchased from the market rather than subscribing the rights.
(Source : AKDTRADE)
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