Indian Oil Corporation (IOC) plans to raise capital through rights issue of equity shares as part of a government's plan to infuse capital into three state-owned fuel retailers to fund their net zero carbon emission projects.
About Rights Issue:
A rights issue is an invitation to existing shareholders to purchase additional new shares in the company.
This type of issue gives existing shareholders securities called rights.
With the rights, the shareholder can purchase new shares at a discount to the market price on a stated future date.
The company is giving shareholders a chance to increase their exposure to the stock at a discount price.
Until the date at which the new shares can be purchased, shareholders may trade the rights on the market the same way that they would trade ordinary shares.
The rights issued to a shareholder have value, thus compensating current shareholders for the future dilution of their existing shares' value.
Dilution occurs because a right offering spreads a company’s net profit over a larger number of shares. Thus, the company’s earnings per share, or EPS, decreases as the allocated earnings result in share dilution.
Why Issue a Rights Offering?
Companies most commonly issue a right offering to raise additional capital.
A company may need extra capital to meet its current financial obligations.
Troubled companies typically use rights issues to pay down debt, especially when they are unable to borrow more money.
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