subscription right

You know how family will always call you before they sell that plot of land your father left behind, because you have first right to buy it before it goes to a stranger? That is exactly the spirit behind a subscription right.

When a company wants to raise more money, it often turns to the people who already own its shares before it turns to the wider public. This is called a rights issue, and the subscription right is the actual entitlement each shareholder receives, the permission slip that says you can buy a certain number of new shares, usually at a price lower than what the shares are trading for on the exchange.

Say you hold 1,000 shares in a company listed on the Nigerian Exchange, and the company announces a rights issue of one new share for every four you already hold, priced at ₦18 when the market price is ₦25. Your subscription right lets you buy 250 new shares at that discounted ₦18, which totals ₦4,500, instead of paying the market rate of ₦6,250. That gap is the value baked into the right itself.

You do not have to use it. If you cannot afford to take up the offer, or you simply do not want more shares in that company, you can often sell your subscription right to someone else on the market, and they get to buy the discounted shares in your place. Ignore it completely, and the right usually expires worthless, while your percentage ownership in the company calmly shrinks because more shares now exist and yours did not grow with them.

For someone in London sending money home to take up a relative's rights issue allocation in a Nigerian bank stock, this is often the moment that decides whether the family keeps its slice of ownership or watches it get diluted by other investors who showed up with cash.