A £6 subscription price does not make a new share economically cost £6: an existing holder also gives up an entitlement they could have sold. In the worked example below, the apparently cheap share costs £9.20 once that entitlement is counted.[1][2]

Rights issues can finance infrastructure like the substation behind the entrance pictured above. National Grid's May 2024 announcement linked its fundraising to expanded investment in energy networks. But the financial question comes before the construction question: what exactly is the shareholder receiving, and what must they contribute to keep it?[3]

The share price has to make room for new cash

Consider a hypothetical company whose shares trade at £10 immediately before they lose their entitlement to participate. It offers one new share for every four existing shares, at £6. The rights are transferable, all the new shares are subscribed, and old and new shares have identical economic rights once issued. Ignore fees, taxes, dividends and changes in the market's assessment of the business.

Those assumptions matter. We are isolating the financing arithmetic, not predicting an opening quotation. FTSE Russell uses the same weighted-price logic when adjusting an index for a standard discounted rights issue.[2]

For each block of four old shares, the company receives the subscription cash for one additional share. The theoretical value of the enlarged equity is the old market value plus that cash, spread across the enlarged share count:

Theoretical ex-rights price = (4 × £10 + 1 × £6) ÷ 5 = £9.20.

The phrase ex-rights means that a buyer of the ordinary share no longer acquires the subscription entitlement with it. The lower theoretical quotation reflects a changed package. Before separation, the share carried the right; afterward, the ordinary share and the tradable entitlement must be valued separately.[1][2]

Nothing in the calculation says that issuing equity has damaged the operating business. Equally, it says nothing about whether management will invest the proceeds well. It simply credits the company with the cash it has received and counts every share entitled to the resulting value.

The missing asset is the right

Our holder's four old shares collectively entitle them to subscribe for one new share. If that new share is worth £9.20 and obtaining it requires a £6 payment, the entitlement has a theoretical value of £3.20. That is the value of the entire entitlement attached to this block of four shares, not the value attributable to each old share.

This closes the apparent hole in the account. The fall in the theoretical value of the four ordinary shares is exactly matched by the right's value. A screen displaying only the ordinary-share position would omit an asset.

The holder can exercise the entitlement and pay the subscription cash. Their enlarged shareholding then equals their original wealth plus the new money committed. Because they have subscribed in proportion to their holding, their ownership percentage is unchanged under our assumptions.

Alternatively, they can sell the entitlement at its theoretical value. The remaining shares plus the sale proceeds equal their original wealth, before costs. Their ownership percentage falls because somebody else now acquires the additional share. Preserving wealth and preserving a percentage stake are different outcomes. National Grid's prospectus explicitly offered eligible holders the choice of subscribing or selling their nil-paid rights.[4]

“Nil paid” describes the unpaid subscription amount. It does not mean the entitlement is worthless. Nor does receiving it without a separate purchase make it costless to exercise: the holder sacrifices the proceeds available from selling it. A buyer who purchases the entitlement and then subscribes pays £3.20 plus £6—the same £9.20 theoretical value. The original holder faces the same economic cost through a forgone sale.

Letting the deadline pass changes the calculation

There is no universal rule that doing nothing either preserves the entitlement's value or destroys it. The treatment of unexercised rights belongs in the offer document.

For rights issues within the relevant UK listing rules, securities corresponding to unexercised rights must be offered for subscription or purchase on terms that return any premium, net of expenses, to the holders, subject to a small-proceeds exception. If no net premium is obtained, the securities may go to the underwriters.[5]

National Grid's prospectus described such an arrangement: its underwriters would try to place shares for entitlements not taken up, with qualifying proceeds distributed under the stated conditions. It did not promise a payout. Its sponsored nominee and certificated holders also had different acceptance deadlines.[4]

That distinction matters to the valuation. Selling a right while it trades realizes an available price. Waiting for a later placement leaves both the eventual premium and the costs unresolved. In our frictionless example, losing the entitlement without compensation would leave the shareholder with the reduced ordinary-share value alone.

The business can still be worth less

The strongest counterweight to this neat arithmetic is the reason the company needs money. A rescue financing may reveal losses that investors had underestimated. An expansion may require more capital than its future cash flows justify. Either can lower the value assigned to the existing business while the rights issue rearranges ownership.

The theoretical ex-rights price is therefore a benchmark for separating effects, not a price target. It holds the operating-business valuation constant. Actual shares and rights can trade below the values calculated here, and transaction costs make the choice between subscribing and selling less exact.

The falsifier for a “merely mechanical” explanation of a price fall is a decline in the combined executable value of the old shares and their rights, relative to the value before separation, after relevant dividend and cost adjustments. If that combined value falls once both instruments are trading, detaching the entitlement cannot explain the whole loss. The arithmetic alone cannot identify the additional cause.

For a live offer, the useful watchlist follows its published timetable:

• On the ex-rights date: compare the ordinary shares and the full entitlement together against the adjusted pre-separation value. Check whether the new shares carry different dividend rights; FTSE Russell treats that case separately.[2]
• Before the applicable instruction deadline: verify the holder's eligibility, the intermediary's cutoff, and the net proceeds available from selling rights. A nominal subscription discount does not answer those questions.[4]
• At the issue-results and any remaining-share placement announcements: reconcile the shares issued, cash raised, costs and any compensation for unexercised entitlements. UK listing rules require disclosure of the issue results and relevant sale details.[5]

Sources

1. Financial Conduct Authority, Handbook glossary, “Rights issue” — proportional offers and tradable nil-paid rights.
2. FTSE Russell, Corporate Actions and Events Guide for Market Capitalisation Weighted Indices, version 7.1, September 2026, section 4.9 — standard ex-rights calculations and differing dividend entitlements.
3. National Grid, rights-issue announcement, 23 May 2024 — financing the company's planned expansion of energy-network investment.
4. National Grid, rights-issue prospectus, 23 May 2024, Parts II and III — shareholder choices, eligibility, deadlines and treatment of unexercised entitlements.
5. Financial Conduct Authority, UK Listing Rules, chapter 9, especially UKLR 9.4.4–9.4.5 — unexercised rights, net premiums and results disclosures; consulted 26 September 2026.
6. Gordon Griffiths, “National Grid Substation,” Lower Penn, 10 July 2017, Geograph photograph 5460979 via Wikimedia Commons — photograph and provenance, CC BY-SA 2.0.