A rights issue is one of the main ways Nigerian listed companies raise additional capital from their existing shareholders. If you own shares in a company that announces a rights issue, you will receive an entitlement to buy a certain number of new shares at a set price. Understanding your options is important — and any decision about whether to take up your rights should be made in consultation with a financial adviser.
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Definition
A rights issue is when a company offers its existing shareholders the right to purchase newly issued shares at a specified price, proportional to their current holding, before the offer is made to the public.
A listed Nigerian company might need additional capital to fund expansion, reduce debt, meet regulatory requirements, or finance an acquisition. A rights issue is one way to raise that capital by issuing new shares to existing shareholders at a price typically below the current market price. This discount is the incentive for shareholders to subscribe.
Rights are allocated proportionally. For example, a "1 for 4" rights issue means for every 4 shares you currently own, you are entitled to buy 1 new share at the offer price. If you own 400 shares, you would be entitled to buy 100 new shares. The entitlement is determined by your shareholding on a specific record date.
You have three main choices when a rights issue is announced: (1) Subscribe — pay the offer price and take up your full entitlement of new shares. (2) Sell your rights — in some cases, the rights themselves can be sold on the NGX to another investor who wishes to subscribe. (3) Let the rights lapse — do nothing, in which case your entitlement expires with no payment to you. Each option has different financial consequences. This is not a recommendation of any specific course of action.
To subscribe for new shares in a rights issue, you typically instruct your broker or investment platform before the closing date of the offer. The required payment is deducted from your investment account or you make a separate transfer. The new shares are then registered in your name in the CSCS after the issue closes and allotment is completed.
Only shareholders who are registered in the CSCS in their own name before the record date are entitled to receive rights. If your shares are held in a nominee or pooled structure, your platform receives the rights entitlement and may or may not pass it through to you. With shares registered directly in your name, the rights entitlement flows to you as the registered holder.
A rights issue is when a company you own shares in gives you the opportunity to buy additional new shares at a set price, usually below the current market price, in proportion to how many shares you already own.
No. Participation is not compulsory. You can subscribe, sell your rights (if they are tradeable), or let them lapse. Each choice has different financial consequences. You should seek financial advice before deciding.
In some rights issues, the rights are listed as renounceable rights (also called nil-paid letters of allotment) and can be traded on the NGX during the offer period. Check the specific terms of the rights issue announcement.
If you do not take any action before the closing date, your rights lapse. You will not receive any payment unless the rights were tradeable and sold on your behalf. Your percentage ownership in the company will be diluted if the new shares are taken up by other shareholders.
When new shares are issued, the total number of shares outstanding increases. This generally causes the market price per share to adjust downward — a process called the ex-rights adjustment. The company has more shares outstanding but the same underlying assets, so the price per share is typically lower after the issue closes.
If you take up your rights and receive additional shares, those shares are entitled to future dividends on the same basis as your existing shares. The new shares may not be entitled to the current year's interim dividend depending on the issue timing — check the company's prospectus.
Important disclaimer
This article is for general information and educational purposes only. It does not constitute financial advice, investment advice, legal advice, or tax advice. The value of investments can fall as well as rise. Seek independent regulated financial advice before making any investment decision. Shares Saver does not provide financial advice.
Shares Saver lets you buy and own NGX-listed shares directly in your own name through regulated broker execution.
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