Chapter 4 · IPOs, FPOs and rights shares
Right shares
Extra shares offered to existing holders, usually cheap — and ignoring them costs you.
A rights issue offers existing shareholders the chance to buy additional shares in proportion to what they already hold, usually well below the market price. They are common in Nepal, especially among banks and insurers raising capital to meet regulatory minimums.
Why the price falls afterwards
If a company issues one new share for every two held, at a price below market, the total value is now spread across more shares. The market price adjusts down to reflect that. You have not lost anything if you took up your rights — you own more shares at a lower average cost.
What to check before deciding
- Why is the money being raised? Meeting a regulatory minimum is different from funding growth.
- Can you afford the full entitlement? Partial take-up still dilutes you partially.
- Do you still want to own more of this company? A cheap price is not a reason on its own.
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