Rights Issue

A rights issue is an equity raise in which existing shareholders receive rights to buy new shares — pro rata to their holdings — at a set subscription price, typically at a meaningful discount to the market price, within a fixed window. Shareholders can exercise, sell the rights (if tradeable), or let them lapse.

The pre-emptive structure protects existing holders from forced dilution: anyone who exercises maintains their percentage ownership, and because everyone gets the discount pro rata, the discount itself transfers no value away from participating holders. After the raise the shares trade at the theoretical ex-rights price (TERP) — a weighted average of the old price and the subscription price — so comparing the discount to TERP, not to the pre-deal price, is the correct framing.

Rights issues are the standard follow-on structure in the UK and Europe, where pre-emption rights are stronger; in the US, marketed follow-ons and bought deals are more common. Deals are often underwritten so the company is guaranteed the proceeds even if holders don't subscribe.