Rights Issue Dilution Calculator

How to Use This Tool

Follow these steps to calculate rights issue dilution accurately:

1. Enter the number of shares you currently hold in the company.
2. Input the total number of outstanding shares the company has before the rights issue (this is usually disclosed in the rights issue prospectus).
3. Enter the rights issue ratio: for example, a 1-for-5 rights issue means you get 1 new share for every 5 existing shares you hold, so enter 1 as new shares and 5 as existing shares.
4. Add the subscription price per new share (the discounted price offered in the rights issue) and the current market price per share.
5. Select whether you plan to participate in the rights issue using the dropdown.
6. Click the Calculate button to see your detailed dilution breakdown.
7. Use the Reset button to clear all inputs and start over.

Formula and Logic

This calculator uses standard financial formulas for rights issue analysis:

• Total New Shares Issued = (Total Pre-Issue Outstanding Shares / Ratio Existing Shares) × Ratio New Shares
• Total Post-Issue Shares = Total Pre-Issue Outstanding Shares + Total New Shares Issued
• Pre-Issue Ownership % = (Your Existing Shares / Total Pre-Issue Outstanding Shares) × 100
• Theoretical Ex-Rights Price (TERP) = [(Total Pre-Issue Shares × Current Market Price) + (Total New Shares × Subscription Price)] / Total Post-Issue Shares
• Post-Issue Ownership (If Participating) = (Your Existing Shares + Your New Shares) / Total Post-Issue Shares × 100
• Post-Issue Ownership (If Not Participating) = Your Existing Shares / Total Post-Issue Shares × 100
• Dilution % = Pre-Issue Ownership % - Post-Issue Ownership %

TERP represents the estimated fair price of the share after the rights issue is completed, accounting for the discounted subscription price.

Practical Notes

Rights issues have specific implications for individual investors and financial planners:

• Subscription prices are typically 10-20% below current market price, but the TERP will be lower than the pre-issue market price due to the new share issuance.
• If you do not participate in a rights issue, your ownership stake will be diluted, and the value of your holding will adjust to the TERP.
• In many jurisdictions, subscribing to rights issues is not a taxable event, but selling rights or the resulting shares may trigger capital gains tax. Consult a tax professional for region-specific rules.
• Rights issues are often used by companies to raise capital for expansion, debt repayment, or acquisitions. Review the company's prospectus to understand the purpose of the issue before participating.
• You can sell your rights to subscribe if you do not wish to invest more capital, which can offset some dilution effects.

Why This Tool Is Useful

This tool helps you make informed decisions about rights issue participation:

• Individual investors can quickly see how participating or not participating will impact their ownership percentage and holding value.
• Financial planners can model dilution scenarios for client portfolios during corporate action planning.
• The detailed breakdown includes TERP, investment required, and post-issue value, eliminating manual calculation errors.
• Clear visualization of dilution helps avoid unexpected reductions in voting power or portfolio weight.

Frequently Asked Questions

What is a rights issue?

A rights issue is a way for companies to raise additional capital by offering existing shareholders the right to buy new shares at a discounted price, proportional to their current shareholding.

Is dilution always bad if I don't participate?

Dilution reduces your ownership percentage, but the TERP may be close to the subscription price. If you do not participate, you can sell your rights to subscribe, which can compensate for some value loss.

How is TERP different from the current market price?

TERP is the theoretical price after the rights issue, which is lower than the pre-issue market price because new shares are issued at a discount. It reflects the weighted average of the market price and subscription price.

Additional Guidance

Before making decisions based on this calculator:

• Always verify all input values (outstanding shares, ratio, prices) from the official rights issue prospectus or your broker.
• Consider transaction fees for subscribing to new shares, which are not included in this calculation.
• If you hold shares in a retirement account, check if there are restrictions on participating in rights issues.
• Use this tool alongside other fundamental analysis of the company's financial health before committing additional capital.