Corporate Activity: Right Issue

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What is Right Issue?


Rights issue is yet another way using which companies raise additional capital from the public. In a rights issue, the company offering these rights gives its existing shareholders a right to buy new shares of the company at a discount from its current market price at a specified future date. The right works just like an option, so the investor getting the right can choose to exercise it or not.


Impact of Right Issue on Share Price


I believe that investors are concerning on how right issue will impact share price. Here we go. I have extract the data for right issue that occur for the past one year. The result is within my expectation.

Market: KLSE

Period: May 2018 - Aug 2019





Comparison of share price from the date of announcement to 1 day before entitlement date


Among 29 samples that I selected, 18 of the stocks shows negative return. 2 stocks has no movement and only 8 stocks shows positive return.

The average return for this 29 stocks is -5.49%.


Comparison of share price from the date of entitlement to 1 month after entitlement date


12 of the stocks show positive return 1 month after the entitlement date. 15 of the stock show negative return.

The average return is -1.01%.


Suggestion


Hence, it is advised to avoid investing in stock that issue right issue in before entitlement date. Unless there is solid reason for you to hold the stock. After entitlement date, the stock price will back to its normal track. Investor is advised to invest based on their own strategy. Nevertheless, always follow your rules when investing.


Other observation


Among the 29 samples, most of the companies' share price are below RM1. Only 3 companies' share price are above RM1.





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