Translation: Rights Issue = Preemptive Rights

Preemptive rights (Rights Issue) are a method through which public companies give existing shareholders the opportunity to subscribe to new shares issued by the company, in proportion to their existing ownership before the shares are offered to other investors. This enables them to maintain their relative ownership stake in the capital.

Simple definition:

It is like owning a stake in a company, and the company gives you the first right to purchase new shares offered for subscription before anyone else, so that you can maintain your percentage ownership in the company without it decreasing.

Note:

Preemptive rights give existing shareholders a preferential opportunity to participate in the company’s expansion, but they may require injecting additional funds or selling those rights in the financial market if the shareholder does not wish to subscribe. Therefore, they are subject to precise regulatory controls and requirements.

Example:

Suppose a shareholder owns 1,000 shares in a company that decides to increase its capital by issuing preemptive rights.

This shareholder receives a specified number of "preemptive rights" based on the number of shares owned, allowing them to purchase new shares at a specified price.

If they exercise their right and subscribe, they maintain their ownership percentage in the company as it expands. If they do not wish to subscribe, they can generally sell these rights in the financial market to benefit from their value.

What does this mean for you?

Maintaining ownership: A preemptive rights issue enables an existing shareholder to avoid the "dilution" of their proportional ownership in the company resulting from the entry of new shareholders.

Multiple options: The shareholder can choose between subscribing to purchase the new shares or selling the preemptive rights in the market to benefit financially from them.

The need for an investment decision: Dealing with preemptive rights requires monitoring the subscription dates and terms and making the appropriate decision based on the status of the investment portfolio.

Frequently asked question:

Does purchasing new shares through preemptive rights always guarantee a profit?

Answer: No. Preemptive rights give you the right to subscribe to the company’s shares, but the value of these shares and future returns are linked to the company’s overall performance and market conditions, and are subject to the same investment risks as stocks.