Question

This route is best suited for companies who would like to raise capital without diluting the stake of its existing shareholders.

• A. Initial Public Offering (IPO)
• B. A follow on public offering
• C. Rights Issue
• D. A Preferential issue

Hint:

Remember: Rights Issue = Right of existing shareholders to maintain their stake. No dilution if they exercise their rights. IPO and FPO = New shareholders = Dilution.

Answer 1

The Correct Option is C

Step 1: Understanding the Concept:
Dilution occurs when new shares are issued to outsiders, reducing the percentage ownership of existing shareholders.
Step 2: Detailed Explanation:
In a Rights Issue, the company offers new shares to its existing shareholders in proportion to their current holdings.
If the existing shareholders subscribe to these shares, their percentage ownership in the company remains unchanged.
IPO and FPO involve selling shares to the general public, which leads to dilution.
Step 3: Final Answer:
(C) Rights Issue