11 Personal Benefits Of Promoters From A Rights Issue

Personal Benefits Of Promoters From A Rights Issue Company promoter feeling confident of deriving personal benefits from a rights issue.

(2) Counteract The Sale Of Shares By Promoters

It is one of the most significant & promoter-friendly reasons or benefits behind a rights issue. Buying & selling of shares by shareholders including promoters is a common phenomenon. It can occur anytime in the markets for various reasons.

A reduction in promoter’s stake may occur due to a number of temporary factors such as a need for liquidity, or any other personal reasons. Once these temporary factors are resolved, promoters would like to regain their lost stake.

In such circumstances, a rights issue can bring back their lost stake within no time. Therefore, promoters would like to bring rights issue even when market sentiments are not supportive.

Thus, promoters will eagerly buy the unsubscribed portion of rights shares to boost their stake.

[Read Also: 10 Possible Reasons Behind A Company’s Right Issue]

(3) Neutralize Stake Dilution Ahead Of Issuance Of New Shares To Other Shareholders

It is one of the most popular & promoter-friendly reasons or benefits behind a rights issue. Fresh equity can be issued by the company as per its articles of association. It helps a company to raise funds from time-to-time for issuing shares.

But, new shares can also be issued to joint venture partner on preferential basis. Additionally, bond holders can also opt for converting bonds into equity on maturity.

Similarly, warrant holders can also convert their warrants into shares on or before maturity date. These measures often results in relative stake dilution of promoter’s shareholding.

This form of decline in promoter’s ownership can be gained back through rights issue. Therefore, promoters would like to bring rights issue that is more attractive to them rather than small investors.

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  • Personal Benefits Of Promoters From A Rights Issue: Shutterstock

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