The government is preparing to introduce a new Right share policy to improve the process of issuing and distributing right shares. According to officials, this new system will fix the problems in the current method and make the process smoother for both companies and shareholders.
Current system allows unsold shares to be auctioned to public
At present, if a company issues right shares and they remain unsold, those shares can be auctioned to the general public at competitive prices. This has often allowed companies to earn additional revenue, as the bidding price typically matches or exceeds the market rate.
New policy aims to stop auctions and give priority to shareholders
The new policy, however, plans to end this auction system. Under the updated rules, only the existing shareholders will be allowed to apply for the unsold shares, not the general public. The shares will be distributed proportionally, in blocks of 10 units, to those who request more than their original rights.
Right to apply for more than allocated shares
Currently, if a company offers a 50% right share, shareholders are allowed to apply for only half the number of shares they hold. For example, if someone holds 1,000 shares, they can apply for 500 right shares. But under the new policy, they will be allowed to apply for more than that, increasing their chance of getting additional shares that others leave behind.
Reason for unsold shares: lack of awareness
One of the main reasons why some right shares go unsold is because many shareholders don’t apply due to lack of information or awareness. These leftover shares are then auctioned to outsiders, which the new policy seeks to avoid.
Proportional distribution instead of auction
Now, if any right shares remain unsold after the initial allocation, they will be distributed proportionally to shareholders who applied for more. For instance, if 1,000 shares remain unsold and multiple shareholders request extra, the shares will be divided among them in lots of 10 based on their demand.
SMEs already using this system
This kind of proportional allocation is already being used by Small and Medium Enterprises (SMEs), though no SME is publicly listed yet. The Securities Board is now looking to extend the same rule to all listed companies as well.
Benefit for shareholders from new policy
The new policy will benefit shareholders financially. When a company issues a right share, its stock price adjusts accordingly. For example, if a company issues 50% right shares and its price before book closure is Rs 500 per share, the price adjusts to Rs 366.67 after book closure using the formula:
(500 + 100×0.5) / (1 + 0.5) = 366.67
If an investor holds 1,000 shares bought at Rs 500 each, the total investment is Rs 5 lakh. After purchasing 500 right shares at Rs 100 each, their investment becomes Rs 5.5 lakh with 1,500 shares in total. The average adjusted market price remains Rs 366.67, so there’s no real profit yet.
Extra shares bring real profit
However, if a shareholder receives more than their right shares through the new proportional system, any share above the allotted right can be sold at the market price. The difference between the market price and the face value (Rs 100) will be the profit.
In the example above, getting 600 instead of 500 right shares means the extra 100 shares can bring Rs 266.67 profit per share — totaling Rs 26,667 (excluding taxes). This makes the new system more rewarding for active and informed shareholders.
