Rights issue can be offered at a price costlier to market price. These reasons to subscribe rights issue at higher than market price are amazing.
Rights issue is an issue that offers additional new shares to existing shareholders in proportion to their shareholdings on record date. These additional new shares are usually offered at a discounted price as compared to market price.
But, every rights issue is not offered at a discounted price. Some rights issue may offer additional new shares at a price higher than market price.
Most of the small investors would like to stay away from such issues that appear to be a costly bet for them. But, several shareholders usually large investors would still like to buy even costly rights issue.
There could be several unusual circumstances that could make a rights issue successful even at a higher price. Here are 4 reasons why shareholders exercise rights to buy shares at issue price higher than market price:
(1) Price Difference In Open Market & Rights Issue Price Is Negligible
It is one of the most surprising reasons to subscribe rights issue at higher than market price. Every stock is volatile in nature to certain extent. This volatility may change from time-to-time depending on supply & demand of shares from shareholders.
Rights issue of an attractive company can also increase volatility of stocks during subscription period. These wild moves of stocks during such periods can make the discrepancy between trading price & rights exercise price quite negligible.
Additionally, when existing shareholders who are seeking to add to their position in return of money which in turn goes directly to the company itself may opt to subscribe the issue. This money collected from shareholders to exercise their rights can be further used by company for boosting its growth.
Thus, a bright future can be ascertained by the shareholders through subscribing to the issue even at negligible price discrepancy.
- Subscribe Rights Issue At Higher Than Market Price: Shutterstock