Rights Issue

A rights issue gives the existing shareholders the right to subscribe for new ordinary shares at an issue price lower than the prevailing market price and at a ratio equivalent to their existing shareholding. Companies carry out a rights issue when they want to raise additional funds to finance their capital requirements.

In offering a rights issue, the company sends out a provisional allotment letter (PAL) to all existing shareholders informing them of the rights issue entitlement. Shareholders are required to follow all the instructions given in the PAL in subscribing their rights for the new shares. If you choose not to exercise your right, remember that the PAL can be sold to the open market (if quoted) or the entitlement can be renounced to someone else.

Often, you will see a category of 'A' shares listed in the newspapers and investment magazines. The listing of 'A' shares refer to the issue of shares not qualified to entitlements, such as dividends, bonus and rights issues. These shares will later merge with the existing shares after the entitlement date.

Bonus Issue

A bonus issue is the issue of new ordinary shares at no cost to existing shareholders but out of the company's reserves and given in direct proportion to the number of shares owned. Bonus issues are used to enlarge the capital base of the company and may also be used as a means of rewarding its existing shareholders. To be entitled to the bonus share, take note of the Ex-Date as only shares bought before the Ex-Date will be entitled to the bonus share.

The period from the day of announcement of the entitlement of bonus or rights issue or dividend to the day before the Ex-Date is commonly referred to as the cum-period. Normally, cum is a prefix meaning "with". A share that is cum-dividend means the buyer is entitled to a dividend currently attached to it. The same is true for cum-rights and cum-bonus.