Rights issue is the right to order new shares which will be issued by issuers. The rights is given for free and is prioritized to the holders of ordinary shares to order new stocks.

The necessary terms regarding rights issue:

Shareholders' Approval. Right issue is conducted based on the approval of the shareholders meeting. After the approval is obtained, issuers must offer their new shares to the old shareholders first, according to their ownership proportion (preemptive rights).

Purpose. Generally the purpose of rights issue is to raise fresh funds which will be used for business expansion, loan payment, or for working capital. The other purposes are to increase the portion of share ownership of the shareholders, or to raise the number of outstanding stocks so that their trading can be more liquid.

Underwriter, guaranteeing the funds raised from the rights issue to be received by issuers.

Standby buyer, is an investor who is ready to purchase new shares which are not sold. Standby buyer can be the old shareholders or other investors.

Price. Generally the price of rights issue is lower than the market price, because this is considered as incentive for the old shareholders. But actually the price per share of the total stocks owned by investors is not as low as the price of rights issue. Shareholders must carry out price adjustment by adding the value of their old shares with the value of new stocks, and then divide it with the total number of stakes. The adjustment price will show the diluted market price. That is the reason why rights issue is initially offered to the old shareholders.

Cum and Ex-date. Rights issue will be offered to investors listed on the List of Shareholders (DPS) at a specified time. It means that investors who buy shares during that period are entitled to purchase shares (cum rights). Meanwhile, investors who own stocks outside that period are not entitled to buy shares (ex-rights), and the seller will be entitled to the rights.

Other Forms of Rights Issue. (a) Bonus shares, that is, the stocks which are distributed to the old shareholders for free. (b) Stock Dividend. Profit sharing from issuers to investors in the form of shares. (c) Stock Split, that is, dividing the number of shares which also result in the fraction of the price per share. (d). Warrant: a right for investors who owns it to buy shares at specified price and time, generally in the next 3-5 years.

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