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NISM Certifications · NISM-Series-VI: Depository Operations · Special Services - Public Offering / Corporate Actions

A company makes a rights issue in the ratio of 1 new share for every 4 held. Rahul holds 200 shares on the record date and does not wish to subscribe. What is the correct position regarding his rights entitlement (RE)?

Rahul is entitled to 50 rights entitlements, calculated as 200 shares times one-fourth. They are credited to his demat account under a separate ISIN and he may renounce them by selling on the market or transferring off-market within the issue period, instead of subscribing.

  1. AHe is entitled to 50 REs, which are credited to his demat account and may be renounced or traded in the market within the specified periodCorrect
  2. BHe is entitled to 800 REs credited automatically as shares
  3. CHe loses the entitlement automatically with no option to renounce
  4. DHe must physically send a renunciation form to the company

Explanation

200 shares x 1/4 = 50 rights entitlements. These are credited to the demat account of the eligible holder under a separate ISIN and can be renounced on the market or off-market before the closing date. Inverting the ratio gives 800, which is wrong, and physical renunciation is not needed for demat holders.

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