What's a rights issue?

A rights issue is an action in which a listed company issues new shares to existing shareholders. Shareholders can subscribe for these new shares in proportion to their current holdings. If they choose not to participate, their equity will be diluted. This article explains the concept of rights issues, the characteristics of rights, and how to exercise your rights.

Introduction to a rights issue

1. Understanding rights

A right is an option to subscribe for the underlying security.
Its form is similar to a regular stock, with its own code, name, and price.
Rights are typically named by adding the word “rights” to the underlying security’s name.

2. Understanding a rights issue

A rights issue allows you to purchase a corresponding number of shares of the underlying security at the subscription price, based on the number of rights you held.
Typically, within 2 or 3 days after the rights are distributed, the rights issue details will be displayed in the Longbridge App, where you can submit your subscription. You can submit only one rights issue application via the App, and the application can be withdrawn and resubmitted before the deadline.

For example, if you hold 5,000 rights of Alibaba’s Hong Kong-listed shares, with a subscription price of HKD 100.00, then you can apply to purchase 5,000 Alibaba shares at HKD 500,000.00.

3. Source of rights

The company issues rights to all shareholders, distributed directly to shareholders’ accounts by the exchange (holders of physical share certificates need to complete procedures at the registrar to receive the rights).
After rights are issued, the price of the underlying security will drop by an amount equivalent to the value of the issued rights.

4. Trading of rights

Rights can be tradable or non-tradable, as decided by the issuing company.

Tradable rights: Like regular stocks, they can be bought and sold and are subject to price fluctuations. If you buy tradable rights, you can use them to subscribe for new shares.
Non-tradable rights: You can only choose whether to exercise the rights. If not exercised, the rights will expire worthless.

5. Life cycle of rights

Key dates in the life cycle of rights include: listing date, last trading date, subscription deadline, and allotment date of the underlying security.
Tradable rights usually can be traded for only about 5–7 trading days, from the listing date to the last trading date.
You may submit your subscription application between the listing date and the subscription deadline.
The shares of the underlying security purchased through the rights issue will be credited to your account on the allotment date.

6. Attributes of rights

Rights name: the name of the underlying security + the word “rights”.
Rights code: usually 29XX or 44XXX.
Underlying security name: the corresponding underlying security.
Underlying security code: the code of the corresponding underlying security.
Shares per lot: the number of shares per lot for trading.
Subscription price: the price per share of the underlying security for the rights issue.
Tradable or not: Yes/No. Tradable rights follow the code rule 029XX; non-tradable rights follow 44XXX.

7. Handling of rights

Tradable rights: sell, subscribe, or take no action
Non-tradable rights: subscribe or take no action

Thus, you can either invest money to subscribe or take no action. If you take no action, the rights will expire worthless, and you will lose the value of the rights.

How to exercise the rights

Obtain rights issue information: If you hold rights, Longbridge will notify you via system messages or emails before the rights can be exercised.
Apply for rights issue: Go to the Longbridge App > Portfolio > More > Rights/Tender Offer, select the underlying security you wish to subscribe for, and submit your application.

This article is for reference only and does not constitute any investment advice.