What It Means
A rights issue is an offer letting existing shareholders buy additional shares of a company at a discounted price, in proportion to what they already hold — commonly phrased as something like "1 new share for every 5 held."
How It Works
Companies use rights issues to raise capital without taking on debt, and because only existing shareholders (as of a set record date) are eligible, it rewards current investors rather than diluting them against outsiders — though it does dilute anyone who chooses not to participate, since the total share count increases. Shareholders can subscribe to their full entitlement, apply for additional shares if others don't take theirs up, or simply sell the "rights" itself on the exchange if they don't want to invest more. Because new shares are issued below the current market price, the stock's price typically adjusts downward slightly after the rights issue, similar to how it adjusts on an ex-dividend date.