Abu Dhabi: Abu Dhabi Securities Exchange (ADX) has started applying Rights Issue trading. ADX approved Eshraq Properties, listed on ADX under the ticker symbol ESHRAQ, capital increase through a rights issue of the amounts of Dh600 million. The Dh600 million-increase, representing 34.78%, will be divided on 600 million shares at par value Dh1 per share. Rights Issue allows a shareholder who does not want to or cannot subscribe for the share increase to sell his rights for financial benefit.
The adoption of Rights Issue by ADX comes in line with its strategic objectives of diversification of financial products and the introduction of new investment tools. The UAE capital markets regulator Securities and Commodities Authority (SCA) approved earlier last year the regulation concerning trading in rights issues on the UAE financial markets. A Rights Issue is considered an invitation to existing shareholders to purchase additional shares in the company at a discounted market price. Companies use Rights Issues to raise capital. In certain cases, companies will have its Rights Issue underwritten by an investment bank for reassurance that it will raise the finances.
“Rights Issue is a great addition to the markets and will further boost trading, thus increasing investment flows and institutional participation. It will also help increase liquidity and provide shareholders of public joint stock companies the opportunity to achieve returns on their rights issue without participating in it.”
ADX is keen to develop and improve the services and products it provides to its investors and stakeholders. ADX will be providing additional information on Rights Issue on its website.
Shareholders in possession of said rights have three options. Either exercise the rights – the shareholder must give notice that he or she intends to exercise the rights. In this case, the shareholder will have to pay for the new shares but he or she will pay the discounted price for the share. Or sell the rights – the shareholder will receive the price for the rights it is trading for, at that time. Once sold the shareholder no longer has the option to exercise the rights to buy more shares at the discounted price. Alternatively a shareholder has the option of doing nothing – in this case the rights will lapse after a certain date.
It is worth mentioning that until the date at which the new shares can be purchased, shareholders may trade the rights on the market the same way they would trade ordinary shares. The rights issued to a shareholder have a value, thus compensating current shareholders for the future dilution of their existing shares’ value.
Rights Issue is not included in the calculation of the total market capitalization nor is it included in the market indices calculation. However, Rights Issue trading is calculated in the market’s values and volumes of daily or weekly and monthly total market trading.