A rights issue offers existing shareholders the option to purchase additional shares from the company usually at a discounted price.
A company may issue rights to raise money for a few reasons: to save a cash-strapped company, to pay off debts, to finance a new acquisition or to fund business growth and expansion, etc.
For example, ARA Asset Management, a fund management company, recently conducted a rights issue worth S$150 million for seed capital for new funds and to finance strategic investments. In October, Croesus Retail Trust used a rights issue to raise S$70 million to acquire a retail property in Japan.
The time frame to apply for rights shares is short, usually within 1-2 weeks. Existing shareholders who don’t subscribe to the rights issue face share dilution since rights shares are usually sold at a discount to the current market price.
Existing shareholders are mailed a thick few-hundred-page legal document about the rights issue which can honestly be scary and confusing for some shareholders. Because of that, you might wondering how to apply for rights shares when you encounter a rights issue for the first time.
But not to worry! If you’re thinking of applying for rights shares and wondering how to go about doing so, all you actually need to do is to head down to your nearest ATM.
Here’s a simple step-by-step guide to apply for rights shares via ATM (an OCBC ATM is used as the example below):
After inserting your ATM card and keying in your PIN, select ‘More Services’.
In the next screen, go to ‘Investment Services’.
Select ‘Rights Application’.
Select the company’s rights you wish to apply for.
Enter your Central Depository (CDP) securities account number which holds the stock.
Confirm your CDP number.
Enter the number of rights you wish to apply for (up to the maximum you’re allotted).
If you wish to apply for excess rights, select ‘Yes’. Some shareholders might choose not to apply for their rights shares. These excess rights can be then applied by other shareholders.
Enter the number of excess rights you wish to apply for. Please ensure you have sufficient funds in your account to apply for the number of excess rights want.
Check and confirm your rights application carefully. Once confirmed, your transaction cannot be cancelled.