When a company plans to offer new shares of stock to the public, sometimes they will issue a rights offering. 🛒
A rights offering gives existing shareholders the opportunity to purchase shares of the new stocks at a discounted price before those shares are offered to the rest of the public. They are given the right to purchase additional shares in the company at their own discretion. Rights have an expiration date and are issued for a short time only.
Companies use Rights Issues to raise capital for different purposes, such as growth strategies, paying off debts and funding acquisitions, and others. Investors who are not shareholders can buy such rights on the market.
Types of rights issues 🧐
Tradable rights issue - Shareholders can purchase additional shares at a discounted price. However, in case you decide not to exercise your rights, the rights will be sold, and the proceeds will be automatically added to your Trading 212 account. The transaction will be visible in History -> Transactions.
Non-tradable rights issue (also known as Open Offer) - Similarly to the tradable rights issue, shareholders can still subscribe for the newly issued shares with the only difference that in case of not participating, the rights will simply expire.
If you are eligible to participate in a particular rights issue shortly after its official announcement and the start of the subscription period, you will receive an e-mail with the details of the offer and the capital required for it. Once you have applied (given that you have enough free funds for it), you will receive the newly issued shares within 10 days, up to a month, after the official pay date, depending on the way the issue is structured. The newly issued shares will be automatically distributed to your account, while until then, the required funds will be reserved for the event.