---
title: "Rights Issue"
url: "https://mahouse.world/glossary/rights-issue"
type: "glossary term"
topic: "Capital markets"
author: "Ihor Vlasov"
reviewed: "2026-09-20"
published: "2026-08-10"
---

# Rights Issue

A rights issue is an offer of new shares to existing shareholders in proportion to what they hold — one new share for every four — at a discount to the market price, with the right to buy tradeable so that holders who do not want more shares can sell the entitlement. It respects pre-emption, raises large sums, and is how banks and listed fintechs rebuild capital when a placing would be too small or unfair.

**Also known as:** Rights offering, Pre-emptive offer, Entitlement offer

## Key facts

- **Used at:** large capital raises by listed companies — above the 10–20% a placing can do — especially recapitalisations of banks and lenders, and acquisitions funded with equity
- **Binding:** a prospectus, shareholder approval where the authorities require it, and usually an underwriting agreement under which banks take up any shares not subscribed
- **Typical terms:** a ratio (1-for-4, 3-for-7), a subscription price at a 20–40% discount to the theoretical ex-rights price, a two-to-three-week subscription period, and rights that trade on the exchange in the meantime
- **Typical arithmetic:** the theoretical ex-rights price (TERP) is the weighted average of the old shares at the market price and the new ones at the issue price; the discount to TERP is the real discount, and a holder who takes up or sells their rights is not diluted in value
- **Parties:** the company, all its shareholders, the underwriters, and the sub-underwriters (institutions paid to backstop the take-up)

## How a rights issue works in practice

A lender needs €400m of new equity — its regulator has raised its capital requirement, or it is buying a competitor. A placing of 15% of the shares would raise €150m and dilute everyone not in the book; a rights issue raises €400m and dilutes nobody who participates. The company announces the terms: one new share for every three held, at €12 against a market price of €20. Each shareholder may subscribe for their entitlement, sell the rights on the exchange to someone who will, or do nothing — in which case the shares are sold for their benefit at the end (in most markets) and they receive the proceeds less the subscription price.

The discount is not a gift. The theoretical ex-rights price — three shares at €20 plus one at €12, divided by four — is €18; every shareholder's holding is worth the same before and after if they take up or sell the rights, and the "discount" simply ensures the issue succeeds if the market falls during the offer. Underwriters guarantee the rest: if shareholders do not subscribe, the banks take the shares at the issue price, for a fee of 1.5–3%, most of it passed to sub-underwriters.

For banks the rights issue is the instrument of last resort and first resort at once: it is how European banks recapitalised after 2008 and how a lender under regulatory pressure raises capital without asking a strategic investor for it.

## Example

A listed lender with 300m shares at €20 needs €400m of CET1 after its regulator raises its requirement. It announces a 1-for-9 rights issue at €12: 33.3m new shares, €400m. TERP: (9 × €20 + €12) ÷ 10 = €19.20; the €12 price is a 37.5% discount to TERP. A holder of 900 shares (€18,000) may subscribe for 100 at €1,200 and hold 1,000 shares worth €19,200 — unchanged in value; or sell the rights at about €7.20 each (€19.20 − €12), receive €720, and hold 900 shares worth €17,280 — also unchanged. Take-up is 94%; the underwriters place the remaining 2m shares with sub-underwriters at €12; the fee is €8m. The regulator's requirement is met in five weeks.

## Common mistakes

- Reading the discount to the market price as dilution; the discount to TERP is the real one, and a holder who acts is not diluted.
- A ratio and price chosen for a round number rather than for the sum needed.
- Launching without underwriting in a falling market, so the issue fails if the price drops below the subscription price.
- Shareholders doing nothing and forgetting that "nothing" sells their rights at the end — or, in some markets, lets them lapse.
- A fintech raising by rights issue when the regulator's approval of the new capital structure was the real constraint.

## Related terms

- [Private Placement](https://mahouse.world/glossary/private-placement.md)
- [Underwriter](https://mahouse.world/glossary/underwriter.md)
- [Share Buyback](https://mahouse.world/glossary/share-buyback.md)
- [Capital Structure](https://mahouse.world/glossary/capital-structure.md)
- [Regulatory Capital](https://mahouse.world/glossary/regulatory-capital.md)
- [Initial Public Offering](https://mahouse.world/glossary/initial-public-offering.md)

— Ihor Vlasov, M&A FinTech Expert. Last reviewed 2026-09-20. https://mahouse.world/authors/ihor-vlasov