Non-Renounceable Rights
Candlefocus EditorThe primary benefit of a non-renounceable rights issue is that it can make quick cash available to a firm in a time of need. This type of capital raise allows the company to preserve its credit rating while providing a long-term influx of funds. Non-renounceable rights issues also know to reduce the dilution of shareholders’ existing stakes, since existing shareholders have priority access to the rights they receive.
Companies offer non-renounceable rights issues by sending out announcements to shareholders and setting a record date. Shareholders who are eligible as of the record date will receive an allotment letter, specifying the number of rights they hold. Shareholders can then purchase additional shares at the discounted price by tendering their rights.
The downside of non-renounceable rights issues for companies is that, since the rights are non-transferable and can’t be sold on the market, shareholders may be less likely to participate in the rights issue. This means a lower level of funding will be achieved.
Non-renounceable rights issues can be extremely beneficial to companies and shareholders alike. They allow companies to access more capital and prevent dilution of existing stakes, while also offering shareholders the opportunity to buy more shares at a reduced price. Companies should be aware, however, that shareholders may not be as likely to participate if their rights are not transferable.