Overview

Reliance Industries 2020: Rs. 53,125 crore at Rs. 1,257 per share. 14% discount to market price, that is, 1:15 ratio. Shareholders who subscribed maintained their proportional stake and got shares at a discount. Following the rights issue, Reliance shares recovered strongly over the following year as markets rebounded after the COVID-19 crash. Not subscribing meant two outcomes simultaneously: dilution and a missed recovery.

This guide covers rights issue meaning, how Rights Entitlements (REs) work in a demat account since SEBI’s 2020 reform, why companies choose a company rights issue, how to evaluate whether to subscribe rights issue or sell the entitlement, and the rights issue process from record date to allotment.

Features	Rights Issue	Bonus Issue	FPO	QIP
Who gets shares	Existing shareholders only	Existing shareholders only	General public	Qualified institutional buyers
Does shareholder pay	Yes (at discounted price)	No (free shares)	Yes (market price)	Yes (near market price)
New capital raised	Yes	No (accounting entry only)	Yes	Yes
Dilution if not participating	Yes	No	No	Yes
Rights issue vs bonus issue key difference	Shareholders pay; company raises capital	Company capitalises reserves; no cash inflow	Open to all; no preferential discount	Institutional only

What is a Rights Issue and Why Should You Care?

April 2020: SEBI allowed the Reliance rights issue to proceed during the COVID lockdown via digital subscription, and no physical forms. The rights issue process in India became fully digital.

Rights issue meaning: a company offers existing shareholders the right (not obligation) to purchase additional shares at a fixed discounted price, in proportion to their existing holdings. The proportion is stated as a ratio (1:15 = 1 new share for every 15 held).

Following SEBI’s 2020 reforms, Rights Entitlements (REs) are credited in demat form and can be traded on stock exchanges: tradable instruments that can be (a) exercised by subscribing, (b) sold on NSE/BSE during the subscription period, or (c) left to lapse. Not subscribing is not neutral: proportional ownership falls permanently if others subscribe and you do not.

How Does a Rights Issue Work?

The company rights issue process from announcement to allotment:

• Record date: shareholders holding shares in a demat account on record date are eligible; their rights entitlement is calculated from shares held
• RE credited: Rights Entitlements are credited to eligible shareholders’ demat accounts through the depositories with their own NSE/BSE ticker
• Subscription period (7-30 days): subscribe via R-WAP (Rights Web Application Platform) or broker platform using ASBA; or sell RE on NSE/BSE; or do nothing and let RE lapse
• Allotment: shares credited to subscribers’ demat accounts; unsubscribed shares go to underwriter or remain unissued

Rights issue application requires: KYC-verified demat account, ASBA-linked bank account, and R-WAP or broker platform access.

What Are the Different Types of Rights Issues?

• Fully underwritten: an investment bank guarantees to buy unsubscribed shares; the company raises its full target regardless of shareholder participation
• Non-underwritten: company raises only what shareholders subscribe; shortfall is not guaranteed
• Renounceable (standard in India since 2020): the rights entitlement can be sold on NSE/BSE; the shareholder rights issue has a market value even if the shareholder doesn’t want more shares
• Non-renounceable: shareholders can only subscribe or let the RE lapse; no secondary market for the entitlement.

Why Do Companies Opt for a Rights Issue?

Three reasons companies prefer rights issues –

1. No dilution if all shareholders subscribe (unlike FPO where new investors enter); discounted price creates subscription incentive; faster allotment timeline than FPO.
2. Rights issue vs bonus issue: bonus issue converts existing reserves into free shares (no capital raised).
3. Company rights issue raises fresh capital. Both increase shares outstanding; only the rights issue brings cash into the company.

For example: Vodafone Idea has conducted multiple rights issues since 2020 because no FPO or QIP was feasible at acceptable terms. The company rights issue is the instrument of last resort when the company cannot raise capital from new investors.

What Are the Advantages of Participating in a Rights Issue?

Rights issue benefits: discounted price (Reliance 2020: Rs. 1,257 against market price of approximately Rs. 1,460 = 14% discount captured immediately on allotment); proportional stake maintenance when subscribed in full; and the RE sale option where subscribe rights issue is not the only choice (the RE can be sold on NSE/BSE to capture intrinsic value without deploying additional capital).

What Are the Risks Involved in a Rights Issue?

• Dilution if not subscribing: 30% who don’t subscribe own a permanently smaller percentage from allotment day; not gradual, not recoverable
• Market price below issue price: the rights entitlement has no exercise value if the market price falls below the rights issue price during the subscription window
• Negative signalling: company rights issue for debt repayment signals an inability to service borrowings from operations; for growth capex, it signals management confidence. Same mechanism, opposite interpretation.

How to Evaluate a Rights Issue Before Subscribing?

Rights issue investment evaluation: subscription price vs current market price (check on subscription day, not just at announcement). If proceeds are used for the purpose of repaying debt, investors should consider whether the reduction in debt improves the balance sheet or is indicative of financial distress.

Post-rights EPS (20% more shares with 10% earnings growth = EPS decline); total cash outlay for full subscription; RE secondary market price (if RE trades below intrinsic value, buying the RE may be cheaper than subscribing).

How Can You Subscribe to a Rights Issue?

Via R-WAP (investorportal.sebi.gov.in): the digital platform for all rights issue applications; log in using demat account details, select the rights issue, enter quantity up to the rights entitlement maximum, confirm via ASBA block.

Via broker platform: same process with integrated R-WAP; no separate login.

Via selling the RE: sell on NSE or BSE during the subscription window (renounceable rights issues only).

Requirements: KYC-verified demat account and ASBA-linked bank account.

How a Platform Facilitates Easy Subscription to Rights Issues?

• RE balance: rights issue shares (RE units) shown with current market price and intrinsic value in demat account; subscribe vs sell decision pre-calculated
• Integrated R-WAP access: rights issue application via ASBA directly through broker platform; no separate login
• Deadline alerts: push notifications as rights issue application deadline approaches; missed deadline = RE lapses.

Conclusion

A rights issue is not a passive event. Reliance 2020: subscribers captured a 14% discount and the subsequent recovery. Vodafone Idea: shareholders who didn’t subscribe across multiple rights issues faced progressive dilution. The shareholder rights issue decision has three options with specific consequences: subscribe, sell the RE, or let it lapse.

Final Takeaways:

Rights issue investment evaluation: use of proceeds, subscription price vs market price, post-issue EPS impact.

Rights issue meaning: existing shareholders offered new shares at a discount; not subscribing causes dilution

Rights issue vs bonus issue: rights issue raises capital (shareholders pay); bonus issue capitalises reserves (shareholders don’t pay); key rights issue benefits include discounted price and stake maintenance

Rights entitlement (RE): tradable in demat account; exercise, sell on NSE/BSE, or let lapse

Rights issue process: record date → RE in demat account → 15-30 day subscription via R-WAP or broker → allotment

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