What are rights issues? Well, this is where existing shareholders are offered new shares before they're offered to new shareholders.

So if I was a shareholder in a company and I owned 10% and then I heard that new shareholders were being offered shares, I might find that my shares only represent 8% of the new number of shares, or 5% or 2% or 1%.

In order to protect shareholders rights issues mean existing shareholders are offered those new shareholders first.

Now this is called preemption rights and it's enshrined in European company law.

It's a mechanism for raising equity without diluting the existing shareholders.

And a rights issue is offered at a discount to existing share price on a pro-rata basis By pro-rata, this means if you have a 5% shareholding, then you'll receive 5% of the new shares if you take up the rights issue.

Now, some shareholders may decide, do you know what? I don't wanna put extra money into this company, or, I don't have the money to put into this company.

I'm going to pass on the rights issue.

Well, rights issues and preemption rights also mean that those shareholders will be compensated if they do decide to pass.

Let's have a look at an example.

Here we have a two for one rights issue.

So this means for every one share that a shareholder currently owns, they're gonna be offered two additional shares, or for every 10 that they currently own, they'll be offered an an additional 20 that's called the conversion ratio.

Carrying on. It says there's an issue price of one euro, and the existing share price is of two Euros.

That discount is to try and encourage participation from those existing shareholders to try and put more money into the company, but actually the discount itself isn't very important.

And when we look at the economics of rights issues, we see it really isn't important at all.

Here we can see if the existing share price is two, but the issue price is one, then therefore there's a discount of one Euro.

Or alternatively, it's being offered with a 50% discount.

Now, that existing share price of two euros, that's called the come rights price.

Now come rights means with rights.

So before the rights issue happens, my shareholder has the rights to get hold of some of those new shares.

So before the rights issue come, rights means I have the rights to get hold of those new shares, but as soon as the rights issue has happened, then the share price will change to the X Rights price.

And X Rights means without rights, the rights issue has happened.

We don't have those rights anymore.

So com rights means before the rights issue, and X Rights means after.