The right issue by itself has no meaning. Basically what it does is to create more shares so that everybody owns 'more' in terms of absolute share, but the same in terms of percentage. For example, imagine we have $100 here, and we split to 2 shares, you one share at $50 each, and I 1 share. Now, we split it to 10 shares, you 5 shares at $10 each, and I 5 shares. We own more shares now, but still the same $50.
So we need to understand why rather than giving us money, the company asks money from us. We can look at it this way. Buying stock is quite similar to buying a house and rent it out. Now imagine, after many years, your house needs some overhaul or maintenance, isn't it logical and reasonable to spend some money to fix it? And you may be able to increase the rental after that.
Absolutely. And that is the point I want to make. How the company going to use the money from the right issue is of paramount importance! If it is used to improve the earning capability, that's a good thing. Otherwise, you better think twice.
Of course, the companies will offer you good promises and proposals in the right issues. This is when you need to exercise your judgment. Look at their history.
If their stock price increases over the year, you have a good tenant, who helps you to maintain your house, and maybe build a swimming in it, and increase the value of the property.
If they pay you dividend, it is equivalent to the tenant paying you rental.
If they never pay any dividend, it is equivalent to the tenant refuses to pay you rental.
If the stock price drops over the year, you have a bad tenant, who damage your house, causing its value to drop.
If the stock drops in price, no dividend, and keep doing right issue, it is equivalent to a tenant who refuses to pay you rental, damage your house, and keep asking you money to fix the pipes that burst. What would you do in this case? Chase the tenant out? In real life, however, investors seems to tolerate this in stock market.
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