What Is a Rights Issue?
A rights issue is a way for a listed company to raise fresh capital by offering new shares to its existing shareholders — at a discount to the market price, and in proportion to their current holding.
How it works
If a company announces a 1:5 rights issue, you get the right to buy one new share for every five you already own, at the discounted rights price. You can exercise the right (buy the shares), let it lapse, or in many cases sell the right itself in the market during the rights-trading window.
Why companies do it
A rights issue raises money (to fund growth, cut debt, or shore up the balance sheet) from existing owners rather than new investors, so control stays with the current shareholder base. Unlike debt, it doesn't need to be repaid.
Rights issue vs bonus issue
A rights issue is a paid offer — you pay (a discounted price) for new shares, and the company raises cash. A bonus issue is free — existing reserves are capitalised into new shares at no cost, raising nothing. Both are corporate actions.