Glossary
Rights offering
A sale of new shares offered first to existing shareholders, who receive rights to buy at a discount in proportion to their holdings.
On this page
A rights offering is a way for a company to raise money by selling new shares to its existing shareholders first. Each shareholder receives rights in proportion to what they own, allowing them to buy new stock at a set subscription price, usually below the market price, within a short window. It lets current owners keep their percentage of the company if they participate, and it shifts the dilution onto those who do not.
How it works
The company announces the terms: how many rights each share receives, how many rights are needed to buy one new share, the subscription price and the deadline, often a few weeks. Rights are distributed to holders as of a Record date. Some offerings are transferable, meaning the rights trade on an exchange and can be sold; others are non-transferable and simply expire if unused. Many include a backstop, in which an investor or underwriter agrees to buy any shares left unsubscribed.
The theoretical price after the offering blends the old and new shares:
What to watch for
- Act or sell. Ignoring a rights offering usually means losing value. If rights are transferable, selling them recovers most of it.
- Signal. Rights offerings are common in Europe and among closed-end funds, REITs and companies with stretched balance sheets. A deep discount can signal that the company had few other ways to raise capital.