A rights issue gives investors the option, or a right, to buy new shares of the company at a discount to the current market price.
The board of directors of Bharti Airtel has approved the company’s plan to raise up to Rs 21,000 crore by way of a rights issue. The company’s chairman Sunil Bharti Mittal chaired an investor call on Monday to apprise investors of the rights issue.
Under company laws, a rights issue is one of the many ways by which a company can raise additional capital when it needs it.
A rights issue gives investors the option, or a right, to buy new shares of the company at a discount to the current market price. This means instead of going to the public at large, only existing shareholders can buy additional shares in the company if they wish to.
Companies also declare a rights entitlement ratio when declaring a rights issue. For example, if a company declares an entitlement ratio of 1:4, it means that for every four shares that a shareholder already has, they can buy one more share in the rights issue.
In some cases, if there is a belief that funds being raised via rights issue are for a positive intent and may help the company in the short or long run, the stock price as well as market capitalization of the company increases.
Bharti Airtel’s plan
Bharti Airtel’s board has approved raising up to Rs 21,000 crore by way of the rights issue. For every 14 shares held by an existing shareholder, they will be allowed to purchase one share. This is the third fundraising round by Airtel over the last three years.
With the additional capital, Bharti Airtel is likely to go for expansion of its current capacities.
At the investor call held on Monday, Mittal explained that the funds raised by the company will give Bharti Airtel the chance to shift gear to the next phase of growth and tap opportunities by accelerating investments in the rollout of newer technology such as 5G.
Shares of Bharti Airtel closed 5 percent higher at Rs 625 on Monday on the NSE.