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Rights Issue Service

Written by Salsalina Itha Karina Surbakti on 16/08/2024
The author’s views are entirely their own and may not always reflect the views of Putranto Alliance.

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Introduction

A rights issue is a strategic move that allows companies to raise additional capital by offering existing shareholders the opportunity to purchase more shares, often at a discounted price. This process can be a powerful tool for financing expansion, reducing debt, or funding new projects, but it requires careful planning and execution to be successful. Our rights issue service is designed to guide your company through every step of the process, ensuring that your capital-raising goals are met efficiently and effectively.

Definition

A rights issue is a method by which a publicly traded company raises additional capital by giving its existing shareholders the right to purchase additional shares directly from the company, usually at a discounted price. Unlike an Initial Public Offering (IPO), where shares are offered to the public, a rights issue is limited to current shareholders, who are offered new shares in proportion to their existing holdings. This process is often used by companies to raise funds for specific purposes, such as expansion, debt repayment, or enhancing working capital, while allowing shareholders to maintain their proportional ownership.

The Importance

Rights issues are crucial financial tools for companies looking to raise capital without significantly altering their ownership structure. Here’s why they matter:

Capital Raising: Rights issues provide companies with a direct way to raise funds for expansion, debt reduction, or other strategic initiatives.
Shareholder Value: By offering shares at a discount, rights issues can be an attractive option for existing shareholders, allowing them to increase investment at a favorable price.
Control Maintenance: Since only existing shareholders are offered new shares, a rights issue allows a company to raise capital without diluting control or ownership significantly.
Debt Reduction: Companies can use the proceeds from a rights issue to pay down debt, improving their financial stability and creditworthiness.
Support for Growth: The capital raised through a rights issue can fund new projects, acquisitions, or expansions, supporting the company’s long-term growth objectives.

The Best Time to Engage with Rights Issue Services

Timing is critical when considering a rights issue, and certain circumstances may make this option particularly advantageous:

Expansion Plans: If your company is planning a significant expansion or entering new markets, a rights issue can provide the necessary capital to support these initiatives.
High Debt Levels: Companies burdened with debt may use a rights issue to raise funds for debt repayment, thereby improving their balance sheet and reducing interest expenses.
Shareholder Support: When your company has strong support from its shareholders, a rights issue can be a successful way to raise funds while maintaining shareholder value.
Favorable Market Conditions: Conducting a rights issue during favorable market conditions, when investor confidence is high, can lead to a more successful outcome.
Capital Requirements for Projects: If your company needs funding for specific projects or acquisitions, a rights issue can be an effective way to secure the necessary capital.

Benefits of Using Capital Market Legal Consultants for Rights Issue Planning

Engaging with experienced professional services for your company’s rights issue planning offers several critical advantages:

Expert Guidance: Rights issue specialists provide detailed advice on structuring the offering, ensuring it aligns with your company’s strategic goals and shareholder interests.
Regulatory Compliance: Professional services ensure that the implementation of your company’s rights issue plan complies with all relevant regulations, reducing the risk of legal complications.
Efficient Execution: These services streamline the rights issue process, managing timelines, documentation, and communication with shareholders to ensure smooth execution.
Confidentiality and Risk Management: Protecting sensitive information during a rights issue is crucial. Legal consultants ensure that all communications and transactions are handled with the utmost confidentiality, reducing the risk of information leaks that could affect market perception or shareholder confidence.
Reputation Management: A well-executed rights issue can enhance a company’s reputation in the market. Legal consultants assist in managing the legal and regulatory aspects of the issue, ensuring that the process is transparent and well-regarded by investors and stakeholders.

The Process of Rights Issue

The rights issue process in Indonesia involves several key steps, each requiring careful attention to detail:

Pre-Issue Planning: Assessing the company’s financial needs and determining the amount of capital to be raised through the rights issue.
Structuring the Rights Issue: Deciding the ratio of new shares to existing shares, setting the discount price, and determining the subscription period.
Regulatory Approval: Submitting the necessary documentation to the Financial Services Authority (OJK) and the Indonesia Stock Exchange (IDX) for approval.
Shareholder Communication: Informing shareholders about the rights issue, including the terms, conditions, and how they can participate.
Subscription and Allotment: Shareholders subscribe to the new shares, and the company allocates the shares according to the agreed terms.
Listing of New Shares: The newly issued shares are listed on the Indonesia Stock Exchange, becoming available for trading.

How We Can Help

Our team of expert capital market legal consultants provides specialized services to support your rights issue process. We offer comprehensive legal guidance and strategic advice tailored to your company’s needs, ensuring a smooth and successful rights issue. Our services include:

Legal Advisory on Structuring and Compliance: We provide detailed legal advice on structuring your rights issue, including the appropriate ratio of new shares, pricing, and subscription periods. Our team ensures that your rights issue complies with all relevant laws and regulations, minimizing legal risks.
Due Diligence and Documentation: We conduct thorough due diligence to identify any potential legal issues that may arise during the rights issue process. We also prepare and review all necessary legal documentation, including offering circulars and shareholder agreements.
Regulatory Liaison: We provide guidance to conduct communications with regulatory bodies such as the Financial Services Authority (OJK) and the Indonesia Stock Exchange (IDX).
Shareholder Engagement and Communication: We assist in drafting clear and legally sound communications to shareholders, ensuring they fully understand their rights and the benefits of participating in the rights issue. We also provide legal support for shareholder meetings and resolutions related to the rights issue.
Risk Management and Mitigation: We identify and address potential legal risks associated with the rights issue, including the risk of undersubscription or shareholder disputes. Our team develops strategies to mitigate these risks, protecting your company’s interests.

FAQs

Can all shareholders participate in a rights issue?

Yes, all existing shareholders are given the opportunity to participate in a rights issue in proportion to their current holdings.

What happens if a shareholder does not exercise their rights?

If a shareholder does not exercise their rights, their proportionate ownership in the company may be diluted as other shareholders or new investors purchase the available shares.

Are rights issues always offered at a discount?

Rights issues are generally offered at a discount to encourage participation, but the specific pricing is determined based on the company’s financial needs and market conditions.

What are the risks associated with a rights issue?

Risks include the potential possibility of undersubscription and market volatility affecting the success of the offering.

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