Stock Subscription Rights
A Rights Issue allows a listed company to issue new shares that existing shareholders can subscribe to in proportion to their current holdings. If shareholders choose not to participate, their ownership stake will be diluted.
For example, in a 2-for-1 rights issue, shareholders can purchase one additional new share for every two shares they currently hold.
What is a Rights Issue?
Understanding Subscription Rights and Rights Issues
| Subscription Rights | Subscription rights are entitlements that allow shareholders to purchase additional shares, corresponding to the original shares they hold.
Similar to ordinary shares, they have their own symbols, names and prices. Typically, they are identified by adding 'RTS' to the original stock's name. |
| Rights Issues | A rights issue allows shareholders to purchase additional shares at the subscription price, based on the subscription rights they hold.
Within 2-3 days of the rights distribution, details regarding the rights issue will be available on the Longbridge App. You can then submit your application through the app. While only one submission per rights issue is allowed, you can withdraw and resubmit before the deadline. |
For example, if you hold 5000 shares of subscription rights for BABA-SW and the subscription price is HKD 100.00 per share, you can purchase 5,000 additional shares for a total of HKD 500,000.00.
Distribution of Subscription Rights
Subscription rights are distributed to all shareholders by the issuing company and are credited directly to their account by the exchange (for physical stock certificates, you must complete the necessary procedures at the registrar to receive the rights).
Following the distribution, the price of the underlying stock will drop by an amount equivalent to the value of the rights issued.
Trading Subscription Rights
Subscription rights can be either tradable or non-tradable, as determined by the issuing company.
| Renounceable Rights | These rights can be bought and sold on the market like ordinary shares, and their price will fluctuate. If you purchase renounceable rights, you can apply for the rights issue. |
| Non-renounceable Rights | You can choose whether to exercise your rights. If you do not wish to exercise them, the rights will expire and become worthless. |
Lifecycle of Subscription Rights
The key dates in the lifecycle of subscription rights include the listing date, last trading day, subscription deadline, and distribution date of the new shares.
Tradable rights generally have a short trading window of 5-7 days and can be traded between the listing date and the last trading day.
Shareholders can apply for the rights issue anytime between the listing date and the subscription deadline. The new shares purchased through the rights issue will be credited to the shareholder's account on the distribution date.
Key Terms of Subscription Rights
| Rights Issue Name | Underlying stock name + 'RTS' |
| Symbol | Typically 29XX or 44XXX |
| Underlying Stock Name | The name of the original stock |
| Underlying Stock Symbol | The symbol of the original stock |
| Lot Size | The number of shares per trading lot |
| Subscription Price | The price at which shareholders can purchase the new shares during the rights issue |
| Tradable | Yes/No. Tradable rights are typically 029XX, while non-tradable rights are 44XXX. |
Managing Subscription Rights
| Renounceable Rights | You can sell the rights, subscribe to the rights issue, or let them expire. |
| Non-renounceable Rights | You can only subscribe to the rights issue or let them expire. |
In summary, shareholders have limited options: they can participate in the rights issue by paying the subscription price, or do nothing and let the rights expire, which will result in the dilution of their existing holdings.
How to Exercise Subscription Rights?
Receiving rights issue information
Before the rights issue process begins, Longbridge will notify all shareholders holding subscription rights through system messages and emails.
Submitting your rights issue application
To participate in a rights issue: go to APP -> Portfolio -> More -> Rights/Tender Offer, select the stock, and submit your application.