Rights issue discounts move value, they do not add it

What is a rights issue?

A rights issue is an offer of new shares by a listed company, made only to the people who hold its shares on a date the company announces. SEBI's investor guide describes the date as the record date, and the offer as a right to subscribe using a rights entitlement.

The company's board decides to raise the money this way. The holder does not have to take part.

SEBI lists what a holder can do with the entitlement: apply for the shares, renounce it in full or in part, or apply for additional securities beyond the entitlement. Renouncing means transferring the entitlement, on the market or off it, to another person, for a price or otherwise.

Source: SEBI Investor Website, Introduction to Primary Market, Rights Issue, information as on 28 February 2025, read for this article.

Why is the offer priced below the market?

A company raising money from its own holders needs them to say yes, and a price under the market gives them a reason to.

A holder sees ₹27 against a market price of ₹36.32 and reads it as a gift of ₹9.32 a share. It is a price that the market adjusts for, because after the issue the company has more shares and the same business plus the new cash.

A rights issue is the opposite of what bonus shares do. Bonus shares cost the holder nothing and add no money to the company. A rights issue costs money and adds money to the company, and the discount decides how that value is split.

A worked case: Ola Electric Mobility

Ola Electric Mobility's board approved a rights issue of up to ₹1,000 crore on 28 September 2026. Its board then fixed the terms on 7 October 2026, as reported by EquityBulls, read for this article.

The reported terms are these:

• Issue price: ₹27 per share, made up of ₹10 face value and ₹17 premium.
• Entitlement: 2 new shares for every 25 fully paid-up shares held on the record date of 13 October 2026.
• Size: 37,02,72,665 partly paid-up shares, aggregating to ₹999.74 crore if fully subscribed and paid.
• Payment: ₹16.20 per share on application, which is 60 percent, and ₹10.80 per share, which is 40 percent, as a first and final call on or before 31 October 2027.
• Schedule: the issue opens on 22 October 2026 and closes on 30 October 2026, and trading in rights entitlements on the exchanges ends on 26 October 2026.

Sahi, read for this article, reports the 26 percent as measured against the ₹36.32 close on 7 October 2026. The exact figure is (36.32 − 27) ÷ 36.32 = 25.7 percent, which rounds to the 26 percent in the announcement.

This is a worked case of the mechanism and carries no view on the company.

How much value does the discount move?

The standard test is the theoretical ex-rights price, the price at which the whole enlarged company would be worth the same total as before plus the cash paid in.

Take a holder with 2,50,000 shares at the ₹36.32 close. That is a ₹90,80,000 holding.

The entitlement is 2,50,000 ÷ 25 × 2 = 20,000 new shares. At ₹27 they cost 20,000 × 27 = ₹5,40,000.

Count what the holder owns after subscribing. The old shares are worth ₹90,80,000 and the cash paid in is ₹5,40,000, so the total is ₹96,20,000. The holder now has 2,70,000 shares.

The theoretical ex-rights price is ₹96,20,000 ÷ 2,70,000 = ₹35.63 a share. That is ₹0.69 below the old price.

The ₹9.32 headline gap is spread across all shares, old and new, and comes to ₹0.69 on each one once the issue is done.

What does doing nothing cost?

A holder who does not subscribe keeps 2,50,000 shares. At ₹35.63 they are worth 2,50,000 × 35.63 = ₹89,07,407.

That is ₹1,72,593 less than the ₹90,80,000 the holding was worth before. The loss is 1.9 percent of the holding, and no sale was made to cause it.

A holder who subscribes pays ₹5,40,000 and ends with 2,70,000 shares worth 2,70,000 × 35.63 = ₹96,20,000. The value is exactly what went in: ₹90,80,000 plus ₹5,40,000.

A holder who renounces the entitlement sits between the two. Each right is worth the ex-rights price less the issue price, 35.63 − 27 = ₹8.63, so 20,000 rights are worth ₹1,72,593. That is exactly the amount the holder who does nothing loses. A renounced entitlement sold at that price offsets the dilution, and a holder who lets the entitlement lapse gives the amount away.

In all three cases the discount transfers value from the holder who ignores the offer to the holder who takes it up.

What changes when the shares are partly paid?

Ola Electric's shares are partly paid, which changes the cash timing and leaves the split of value alone.

The holder above pays 20,000 × 16.20 = ₹3,24,000 on application. The remaining 20,000 × 10.80 = ₹2,16,000 is due at the call. The two add up to the same ₹5,40,000.

SEBI's guide states the balance call money is paid within 12 months of issue, and that non-payment can lead to forfeiture of the shares. Ola Electric's reported call date is on or before 31 October 2027, and its board keeps the right to change the call timeline.

The arithmetic above treats the full ₹27 as paid, which is the simple way to read the discount. Until the call is made, a partly paid share trades at a different price from a fully paid one. Real market prices will therefore differ from the theoretical figure by some paise. The direction of the transfer stays the same.

What should a holder check first?

Run the same four numbers on any rights issue, in this order.

1. The entitlement ratio and your holding on the record date. The ratio decides how many rights you receive, and only a holder on that date gets any.
2. The issue price against the market price, and the theoretical ex-rights price that follows from them.
3. The cash due on application and the cash due at any call, with the dates.
4. The last day to renounce on the market, because an entitlement that is neither used nor sold lapses.

The numbers above show what each choice costs, and the choice stays with the holder.

For a related mechanism where a company changes its share count, read what a buyback of shares pays you.

Frequently asked questions

Is a rights issue discount free money?

No. A rights issue at a 26 percent discount moved ₹1,72,593 away from a holder of 2,50,000 shares who did nothing, in the Ola Electric worked case. The discount is value shared among all shares, and the holder who subscribes gets it back.

What happens if I ignore a rights entitlement?

The entitlement lapses after the issue closes. Your holding is diluted, and the value difference is the ₹1,72,593 in the worked case above. Selling the entitlement on the market before the last renunciation date recovers it.

What is a record date in a rights issue?

The record date is the date on which the company checks its register to decide who receives rights entitlements. SEBI's guide describes it as the date for determining the shareholders eligible to take part. Ola Electric set 13 October 2026.

What are partly paid shares?

Partly paid shares are shares where only part of the issue price is paid up front and the rest is called later. Ola Electric's rights shares need 60 percent, ₹16.20, on application and 40 percent, ₹10.80, at a first and final call.

What does renouncing a rights entitlement mean?

Renouncing is transferring the entitlement to another person, on the market or off it, in full or in part. SEBI's guide lists it as one of the three choices a holder has. The holder gives up the new shares and can sell the right for a price.

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