Rights Issue: Subscription Price 8,000 Won vs Rights Value ~2,000 Won, Which Option Matters?

There is only one condition!!! The cash and ownership impact of exercising rights differ by option.

A rights issue is when a company sells new shares to increase capital.

Subscription rights give existing shareholders priority to buy new shares.

Retail investor:

"So having rights automatically increases my money?"

Not true. Rights are options, and exercising them requires cash and increases share count.

What exercise methods exist?

There are various options: subscribing normally, selling after ex-rights, forfeiting rights, or selling rights to others.

Normal subscription means paying cash to buy the new shares.

Rights sale means selling the rights either off-exchange or on-exchange.

Terminology

Subscription right → a certificate giving existing shareholders the right to buy new shares.

Ex-rights date adjustment → the stock price typically adjusts by the value of the right after the record date.

Why does this matter?

Whether you exercise directly affects your ownership percentage and value of holdings.

Many subscribe to prevent dilution, but it creates a cash burden.

Numbers, simple calculation example

Situation: Company A, existing shares 1,000, current price 10,000원, rights issue ratio 1:1, subscription price 8,000원.

Scenario 1: Subscribe fully

New shares issued 1,000, total shares become 2,000.

If you held 100 shares your previous stake 10% → after subscription 100/2,000 = 5%.

Your cash outlay: subscription cost for 100 shares 100 × 8,000원 = 800,000원.

Scenario 2: Sell only the rights

Theoretical rights value = existing price - subscription price × allocation ratio

Roughly: rights value around 2,000원 may form in the market.

Selling 100 rights yields 200,000원 income but your ownership is diluted.

Note: dilution means your ownership percentage decreases.

Common misunderstandings to avoid

"Having rights guarantees profit" is incorrect.

If the rights price is low or the subscription price is above market, losses can occur.

"Forfeiting rights has no impact" is also wrong.

Forfeiting avoids cash outflow but does not prevent ownership dilution.

So what to do first

→ 1. Calculate the theoretical rights value by comparing subscription price and current price.

→ 2. Decide your cash capacity and willingness to defend ownership.

→ 3. Check whether rights can be sold and the liquidity of that market.

This is for reference only.

PickStock 💡

※ Investment decisions and responsibility lie with the investor.

※ Figures are as of the time of writing and may change.

※ This article is for informational purposes and not investment advice.