What's Good About Rights Issue?

The best thing about the rights issue is that the shares will be cheaper than the market rate as the companies usually offer the stocks at a discounted price. This means that if the market price of the share is 100, than the company may offer it at a discounted rate of 90. thus you will be able to buy more shares at a cheaper rate.

Recently Godrej Properties, which reported more than two-fold jump in consolidated net profit at 39.47 crore in the first quarter, said it is likely to raise 700 crore through a rights issue within this fiscal.

Underwriting

Rights issues can also be underwritten. This assures that the funds sought by the company will be raised. The agreement between the underwriter and the company is set out in a formal underwriting agreement.

Typical terms of an underwriting require the underwriter to subscribe for any shares offered but not taken up by shareholders. The underwriting agreement will normally enable the underwriter to terminate its obligations in defined circumstances.

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