What is Right Share? A Complete Beginner's Guide
Right Share is an important concept in Nepal's share market, especially for investors who already own shares of a company. When a company needs additional capital, it may offer new shares to its existing shareholders before offering them to others.
What Does Right Share Mean?
A right share is a new share issued by a company to its existing shareholders, usually in a predetermined ratio.
The existing shareholders get the right to purchase additional shares according to the number of shares they already own.
For example, if a company announces a 1:2 right share, it generally means an eligible shareholder can purchase 1 additional share for every 2 existing shares held, subject to the terms of the issue.
Why Do Companies Issue Right Shares?
Companies may issue right shares to raise additional capital.
The money raised can be used for:
- Business expansion
- New investment
- Increasing working capital
- Repaying loans
- Strengthening the company's financial position
- Meeting capital requirements
The exact purpose depends on the company and its approved proposal.
How Does a Right Share Work?
Suppose you own 1,000 shares of a company.
The company announces a right share in the ratio of 1:5.
This means you may be eligible to purchase:
1,000 ÷ 5 = 200 additional shares
If the issue price is Rs. 100 per share, purchasing all 200 shares would require:
200 × Rs. 100 = Rs. 20,000
The actual entitlement, eligibility date and application conditions depend on the specific issue.
Who Can Apply for Right Shares?
Generally, shareholders who hold shares on the relevant eligibility or book-closure date can become eligible for the right issue.
The company announces the important dates and conditions.
Investors should therefore check the official announcement instead of assuming that owning shares at any time automatically makes them eligible.
How to Apply for Right Shares in Nepal?
Eligible investors can generally apply electronically through the applicable Mero Share/My ASBA process.
The investor selects the relevant issue, enters the eligible quantity and submits the application using the required banking arrangement.
Right Share vs IPO
There is an important difference between the two.
IPO: Shares are offered to the public when a company makes its initial public offering.
Right Share: Additional shares are offered to eligible existing shareholders according to the announced ratio.
Is Right Share Always Good?
Not necessarily.
Issuing additional shares increases the number of shares outstanding. The impact on shareholders depends on how the company uses the additional capital and how the business performs afterward.
Investors should consider the company's financial condition, purpose of the issue, valuation and future prospects before making an investment decision.
Final Thoughts
Right shares provide existing shareholders with an opportunity to purchase additional shares when a company raises new capital.
Understanding the right-share ratio, eligibility date, issue price and purpose of the issue is essential before applying.
