How Rights Issues Work in Nigeria

What Is a Rights Issue? Plain Definition

A rights issue is when a listed Nigerian company offers its existing shareholders the right to buy newly issued shares at a set price, proportional to their current holding, before offering them to the public. The offer price is typically set below the current market price as an incentive for shareholders to subscribe. Rights issues are one of the main ways Nigerian listed companies raise additional capital.

Why Nigerian Companies Use Rights Issues to Raise Capital

A listed company might need additional capital to fund expansion, repay debt, meet CBN minimum capital requirements, finance an acquisition, or strengthen its balance sheet. A rights issue allows the company to raise capital from existing shareholders while giving them the first opportunity to maintain their ownership percentage. It is often cheaper and faster than seeking new outside investors or borrowing.

How Rights Are Allocated Based on Your Current Holding

Rights are allocated proportionally to the record date shareholding. A "1 for 4" rights issue means you receive one right for every four shares you hold. If you hold 2,000 shares, you are entitled to buy 500 new shares at the offer price. Your entitlement is determined by your registered holding in the CSCS on the specified record date. If your shares are not registered in your own name by that date, the entitlement may not reach you directly.

Your Three Options: Subscribe, Sell Your Rights, or Let Them Lapse

When a rights issue is announced, you typically have three choices. (1) Subscribe: pay the offer price and take up your full entitlement of new shares. Your total holding increases; you pay the subscription amount. (2) Sell your rights: in some rights issues, the rights are listed as renounceable letters of allotment on the NGX and can be sold to another investor during the offer period. You receive cash but do not take up the new shares. (3) Let them lapse: take no action. Your rights expire at the closing date. You receive nothing, and if other shareholders subscribe, your ownership percentage is diluted. None of these three choices constitutes a financial recommendation — each has different financial consequences depending on your circumstances.

How to Take Up Your Rights Through Your Broker or Platform

To subscribe in a rights issue, you must instruct your broker or investment platform before the offer closing date. The process typically involves completing a subscription form and making payment of the subscription amount. Once the offer closes, allotment is processed and new shares are credited to your CSCS account. The timeline varies — check with your broker and the offer's prospectus for the specific procedures and deadlines.

What Typically Happens to the Share Price During a Rights Issue

When new shares are issued at a price below the current market price, the market price typically adjusts downward after the ex-rights date (the date after which buyers of the shares are not entitled to the rights). This is the theoretical ex-rights price. The market price after the rights issue reflects the weighted average of the pre-rights price and the offer price, adjusted for the ratio of new shares issued. This price adjustment is a mechanical consequence of the dilution — not a negative signal about the company.

Rights Issues and the Direct Ownership Advantage

If your shares are registered directly in your name in the CSCS, the rights entitlement flows directly to you. You receive formal notification from the company's registrar. If your shares are held in a nominee or pooled structure, the rights entitlement goes to the nominee holder, who may or may not pass it through to you. Before any rights issue, confirm with your platform exactly how they handle rights entitlements for their customers.

Frequently Asked Questions

Do I have to participate in a rights issue?

No. Participation is never compulsory. You can subscribe, sell your rights (if renounceable), or let them lapse. Each choice has financial consequences. Seek advice from a qualified financial adviser before deciding.

What happens to my shares if I do nothing in a rights issue?

Your existing shares remain in your account — you do not lose them. Your rights lapse. If other shareholders subscribe to the new shares, your proportionate ownership in the company is diluted.

How do I know if a company I own shares in has announced a rights issue?

Registered shareholders receive formal notification from the company's registrar. Rights issue announcements are also published on the NGX disclosure portal and in the financial media. If your registration address is outdated, you may miss the notification — keeping your registrar details current is important.