SBI Rights Issue Review

 

SBI Rights Issue Review

A rights issue an option that a company opt for to raise capital under a secondary market offering or seasoned equity offering of shares to raise money. The rights issue is a special form of shelf offering or shelf registration. With the issued rights, existing shareholders have the privilege to buy a specified number of new shares from the firm at a specified price within a specified time. A rights issue is in contrast to an initial public offering (primary market offering), where shares are issued to the general public through market exchanges. Closed-end companies cannot retain earnings, because they distribute essentially all of their realized income, and capital gains each year. They raise additional capital by rights offerings. Companies usually opt for a rights issue either when having problems raising capital through traditional means or to avoid interest charges on loans.

SBI is planning to launch its rights issue in January-March 2011. State Bank of India is India’s largest bank and the lender. It is the fundamentally strong company.

So go for this rights issue and buy more shares of SBI. However, keep in mind that rights issue is only for the existing shareholders only. So if you are not the SBI shareholder than you can not buy more shares.

So what I advise you is, if you want to take participation in SBI rights issue than buy shares of SBI right now so that when it launches its rights issue, you can buy additional shares.

I will personally give 5 out of 5 stars to this rights issue. So go for it. And yes, invest for the long time horizon. (More than 5 years).