- August 31, 2021
- Posted by: OptimizeIAS Team
- Category: DPN Topics
Subject – Economy
Context – 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.
- A rights issue is a mechanism by which companies can raise additional capital from existing shareholders.
- While existing shareholders may not necessarily be able to participate in other fund-raising mechanisms like QIPs, preferential allotment etc, rights issue is a more democratic approach to raising funds as it allows the existing shareholders the right to invest first in the company.
- Companies often offer shares in a rights issue at a discount on the market price.
- Rights issues are used by companies seeking to raise capital without increasing debt.
- Shareholders are not obliged to purchase shares offered in a rights issue.
- For a rights issue, there is no requirement of shareholders’ meeting and an approval from the board of directors is sufficient and adequate.
- Therefore, the turnaround time for raising this capital is short.
- A company would offer a rights issue in order to raise capital which can be used to clear its debt obligations, acquire assets, or facilitate expansion without having to take out a loan from a bank.