Oct 08, 2026 by Offer

What is a rights issue: Answer Guide 2027

A rights issue lets existing shareholders buy new shares — usually at a discount — in proportion to their holdings, so they can avoid being diluted. In a rights issue interview, explain the mechanics (subscription price, ratio, the tradable 'rights'), why companies do them (raise equity fast from a known base), and the key number: the theoretical ex-rights price.

What This Tests in a Rights issue interview Question

Whether you understand the anti-dilution logic: existing holders get first refusal.
Whether you know the mechanics: discount, subscription ratio, and tradable nil-paid rights.
Whether you can discuss the signaling: rights issues often read as distress or urgency.

How to Answer a Rights issue interview Question

Define it: a discounted offer of new shares to existing shareholders, pro-rata, with rights that can be sold if not taken up.
Explain the company's motive: fast equity raising from friendly holders, often to repair the balance sheet.
Mention TERP — the theoretical ex-rights price — as the blended value after the issue, and the typical market signal.

Example phrasing: "A rights issue offers existing shareholders new shares at a discount, pro-rata, so they can maintain their ownership — untaken rights can be sold. Companies use them to raise equity quickly, often under pressure, and the shares reprice toward the theoretical ex-rights price blending old and new value."

Common Mistakes in a Rights issue interview Question

Missing the anti-dilution purpose — it's the entire point of offering to existing holders first.
Confusing it with a general public offering open to anyone.
Ignoring the signal: markets often read discounted rights issues as distress.

Rights issues are ECM bread-and-butter in many markets, and the question tests whether you understand shareholder economics. Nail the pro-rata anti-dilution logic plus TERP and you show the corporate-finance fluency that banking interviews demand.