A rights issue is one of the most common ways a Nigerian listed company raises new capital from its existing shareholders. If you receive a rights issue notice, you have a time-limited decision to make. Understanding what a rights issue is — and what your options are — is essential for any registered shareholder.
Last reviewed:
Definition
A rights issue is a corporate action in which a listed company offers its existing registered shareholders the right to purchase new shares at a specified price, in proportion to their current holdings, before those shares are offered to the general public.
Companies raise capital through rights issues for many reasons: to fund expansion, reduce debt, finance an acquisition, or strengthen the balance sheet. Because existing shareholders get first access to the new shares at the offer price, it is also a way to reward shareholder loyalty. Rights issues must be approved by shareholders at a general meeting and registered with the SEC Nigeria before they can proceed.
A rights issue is offered on a defined ratio — for example, "1-for-4" means you can buy 1 new share for every 4 shares you currently hold. The offer price is typically set at a discount to the market price to make the rights attractive. If you hold 4,000 shares in a 1-for-4 rights issue, you are entitled to subscribe for 1,000 new shares at the offer price.
When a rights issue is announced, registered shareholders have three choices: (1) Subscribe — pay the offer price for your entitlement of new shares; (2) Sell nil-paid rights — if the rights are traded on the NGX during the offer period, you can sell your entitlement to another investor; or (3) Let the rights lapse — take no action and allow your entitlement to expire unused.
If you let your rights lapse, the company issues new shares to those who did subscribe. Your percentage ownership of the company decreases — this is dilution. The share price also adjusts downward (the theoretical ex-rights price, or TERP) to reflect the increased number of shares outstanding. The extent of dilution depends on the size of the rights issue relative to existing share capital.
During the rights offer period, the entitlement to subscribe for new shares can itself be traded on the NGX as nil-paid rights. The value of a nil-paid right is approximately the difference between the current market price and the offer price (the "theoretical value"). Selling your nil-paid rights lets you monetise the entitlement without subscribing for new shares.
No — participation is optional. You can subscribe, sell your nil-paid rights, or let your entitlement lapse. The choice depends on your financial situation, your view of the company, and whether you want to maintain your proportional ownership. Seek independent financial advice before deciding.
Nigerian listed companies publish rights issue announcements through the NGX disclosure portal, their company website, and directly to registered shareholders via the share registrar. If your shares are registered in your own name in the CSCS, the registrar will notify you directly.
Rights issues are time-limited — the offer opens on a set date and closes on a stated closing date. Missing the deadline means you lose the right to subscribe. Always check the closing date in the offer prospectus as soon as you receive the notice.
Typically yes — after the rights issue, the share price adjusts to the theoretical ex-rights price (TERP), which is lower than the pre-rights price because more shares are now outstanding. Whether the price recovers depends on how the market views the company's use of the new capital and its subsequent performance.
A prospectus (or offer document) is the formal legal document the company publishes for each rights issue. It contains the full terms of the offer, the subscription ratio and price, the key dates, the purpose of the capital raising, financial information, and risk factors. Read the prospectus carefully before making any decision.
Important disclaimer
This page 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.
← Back to the full investing glossary