There are numerous methods a company can raise additional capital for growth and expansion.
One such method is an issuance of right shares. On 6th June, Druk PNB Bank Ltd announced 1:1 right shares.
What is the meaning of right shares? Why does DPNB issue right shares? What we need to know about it?
What I am planning to do about it as a shareholder? Let us explore these things in this post.
Right Shares – Meaning and Needs
It’s an invitation by the company to its existing shareholders in purchase of additional shares. It’s called right shares or right issue.
This provides the shareholders a right to purchase new shares usually at a discounted rate, before making available to the general public.
It is to raise more fund by giving existing shareholders the opportunity to maintain their ownership ratios in the company.
The no. of shares in the stock market will increase. In our case, it’s 100% increase as right shares declared is 1:1 ratio.
What the Shareholders Must Know
Shareholders can choose not to subscribe the right shares as it’s legally not compulsory.
You can also sell through RSEBL during a auction or give to someone 18. But you must submit your renunciations in a signed form.
Right shares can be issued at par (face value), and premium (above face value). It can also be at a market price.
DPNB declared their right issue at Nu.17. This means it’s right shares at Nu.7 premium but below market price or book value.
In principle, shares you held prior to right issue become less valuable as number of shares in the market is increased.
The right issue will also decrease EPS and dividend payout as profit will get divided among increased number of shares.
So, isn’t it rational subscribing to the right shares to retain the value and ownership ratio? Yes.
What the Shareholders Should Do
DPNB is issuing 84,002,022 right shares. Punjab National Bank will take 42,841,030 shares as it holds 51% ownership in DPNB.
If you plan to hold DPNB shares long-term like me, it’s not a good idea to sell. Otherwise, you can sell now as the price is up by about Nu.10!
There will be a price volatility. They might also auction the unsubscribed right shares to general public in Bhutan.
If you’re for long-term hold, keep lookout for some buying opportunities to add more, above the allotted right shares.
However, remember to account the post-right-issue adjusted price. Last week, DPNB share price came down to Nu. 47 from Nu. 77 due to this revision.
What is my Plan on this Right Issue
I am a long-term investor. So, I will subscribe my right shares. Otherwise, DPNB shares I hold will get diluted and less valuable.
I will also look out for buying opportunities to add more, if they auction those unsubscribed right shares.
How to sell off the unsubscribed right shares is the right of the company. DPNB can either do public auction or sell to one/few big investors!
This time Bhutanese investors may not be like during the public auction of RICB and BNB shares in 2021.
What are your views on the right shares of DPNB? Are you subscribing your own share?
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