What Is a Rights Issue? How It Works for Nigerian Shareholders

Rights issues are a routine but important corporate event for shareholders in Nigerian listed companies. When a company you own shares in announces a rights issue, you will need to understand your options and the timeline for acting on them. This guide explains the mechanics in plain language.

What Is a Rights Issue?

A rights issue is a way for a publicly listed Nigerian company to raise additional capital by offering its existing shareholders the opportunity to buy new shares — before they are offered to new investors. The offer is typically made at a price below the current market price (the "subscription price" or "offer price") and is proportional to the number of shares you already hold.

For example, a company might announce a "1-for-4 rights issue at ₦20 per share" — meaning for every 4 shares you already own, you are entitled to buy 1 new share at ₦20. If the market price is ₦25, the rights issue is priced at a discount to incentivise participation.

Why Do Nigerian Companies Use Rights Issues?

Companies raise capital through rights issues for a range of reasons: funding expansion or acquisition plans; strengthening the balance sheet to meet CBN capital adequacy requirements (common for banks); retiring existing debt; or investing in new infrastructure. The specific reason is disclosed in the company's rights issue prospectus, which all eligible shareholders receive.

How Rights Are Allocated Based on Your Current Holding

Rights are allocated based on your shareholding as at the "record date" — the date the company sets to determine which shareholders are entitled to participate. If your shares are registered directly in your name in the CSCS, you will automatically be on the company's shareholder register as at the record date, and rights will be allocated to your CSCS account.

If your shares are held in a nominee or pooled account at an investment platform, the rights will technically be received by the nominee holder. Your platform should notify you and give you the option to participate, but the process depends on the platform's policies — this is one of the practical advantages of direct CSCS registration.

Your Three Options When a Rights Issue Is Announced

When a rights issue is announced, you have three choices. The right decision depends on your personal financial situation and investment objectives — this is not advice on which to choose:

1. Subscribe (take up your rights): Pay the subscription price for your allocated new shares. Your shareholding increases and you maintain your proportional ownership of the company.
2. Sell your nil-paid rights: During the rights issue period, the rights themselves have a tradeable value (called "nil-paid rights") on the NGX. If you do not want to buy additional shares but want to capture some value from the rights, you may be able to sell them in the market.
3. Let your rights lapse: If you take no action, your rights will expire at the end of the offer period. You will not receive new shares and will not receive any payment for the lapsed rights.

The Dilution Effect If You Do Not Participate

If you let your rights lapse without selling them, your percentage ownership of the company will decrease after the rights issue — because new shares are issued to those who did subscribe, increasing the total number of shares outstanding. The value of each existing share is also theoretically adjusted downward (the "theoretical ex-rights price" or TERP) to reflect the new shares issued at a discount.

Whether dilution is a significant concern depends on the size of the rights issue and your specific circumstances. This is an important factor to discuss with an independent financial adviser before the rights issue deadline passes.

Key Dates to Track During a Nigerian Rights Issue

• Announcement date: the company announces the rights issue via NGX filing.
• Record date: the date that determines which shareholders are entitled to receive rights. You must hold shares before this date.
• Ex-rights date: shares traded on or after this date no longer carry the right to participate.
• Open period: the window during which you can subscribe (pay for new shares) or sell nil-paid rights.
• Closing date: the deadline for submitting your subscription or selling your rights. Missing this date means your rights lapse.

Frequently Asked Questions

Do I have to participate in a rights issue?

No. Participation in a rights issue is optional. You can choose to subscribe, sell your nil-paid rights, or let them lapse. The right choice depends on your financial situation, view of the company, and investment goals. Seek independent financial advice before the deadline.

What happens if I miss the rights issue deadline?

If the subscription period closes and you have not taken any action, your rights will lapse. In some rights issues, the company may sell lapsed nil-paid rights on behalf of shareholders and remit the proceeds — but this depends on the terms of that specific offer. Check the rights issue prospectus for the specific terms.

How do I participate in a rights issue if my shares are on Shares Saver?

If your shares are registered directly in your CSCS name, you should receive notification of the rights issue from the company's registrar. Contact your broker or investment platform for the specific process to submit your subscription or sell your rights within the offer period.

What are nil-paid rights?

Nil-paid rights are the entitlements to buy new shares under the rights issue. They are called "nil-paid" because you have not yet paid anything for them — they represent the right to buy, not the shares themselves. During the rights issue offer period, these rights may be traded on the NGX, allowing shareholders who do not want to subscribe to sell their rights to investors who do.

Why is the rights issue price usually below the market price?

The subscription price is set below the prevailing market price to make the rights issue attractive and ensure sufficient shareholder participation. If the rights issue were priced at or above the market price, shareholders would have little incentive to subscribe (they could simply buy shares in the open market at the same or lower price). The discount is the incentive to subscribe.

What happens to my existing shares if I do nothing?

Your existing shares remain registered to you. The unused rights expire, and your percentage ownership may fall after other shareholders subscribe for the new shares.

How will I know that a rights issue has been announced?

The company files the announcement on the NGX disclosure portal, and its registrar contacts eligible registered shareholders using the details on the share register.