CS Executive · Capital Market and Securities Laws · Basics of Capital Market
Kaveri Auto Ltd, a listed company, offers new equity shares only to its existing shareholders in the ratio of 1 share for every 5 held, at a price below the market price, to raise funds. Which method of raising capital is this?
This is a rights issue, because the new shares are offered only to existing shareholders in proportion to their holdings, here 1 for every 5 held. It is not open to the public or limited to institutions, and it involves fresh issue by the company.
- AFollow-on public offer
- BRights issueCorrect
- CQualified institutions placement
- DOffer for sale
Explanation
An offer of new shares to existing shareholders in proportion to their holdings is a rights issue. A follow-on public offer is open to the public, a QIP is made only to qualified institutional buyers, and an offer for sale involves existing shareholders selling their shares rather than the company issuing new ones.
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