Equity Securities: Shares, Rights Issues, and Corporate Actions
This domain tests the mechanics of share capital: how a company raises more of it, what existing holders are entitled to, and how prices and accounts adjust around dividends, bonus shares and rights. Numerical questions on theoretical ex-rights prices are common.
Share basics
Iranian companies issue registered shares with a nominal value, held in book-entry form at the CSDI. Core rights: dividends, voting at the general meeting, pre-emption in cash capital increases, and residual assets on liquidation. The annual general meeting must be held within four months of the fiscal year end, and the symbol is normally halted around it.
Routes to a capital increase
- Cash contribution (آورده نقدی), which gives existing holders tradable pre-emption rights (حق تقدم).
- Capitalisation of retained earnings or reserves, issuing free shares with no cash call.
- Revaluation of assets (تجدید ارزیابی), an accounting uplift that raises nominal capital without new money.
- Conversion of shareholder or creditor claims (مطالبات) into shares.
Corporate actions and price adjustment
On the ex-dividend or ex-rights date the exchange adjusts the reference price. Dividends are declared by the general meeting and paid through the CSDI to holders at the record date, not simply to whoever holds on the trade date.
Worked example
A company has 1 billion shares trading at 4,000 rials, nominal value 1,000 rials. It raises capital by 50% for cash at nominal value. Theoretical ex-rights price = (1 × 4,000 + 0.5 × 1,000) ÷ 1.5 = 4,500 ÷ 1.5 = 3,000 rials. Each new share carries a right theoretically worth 3,000 − 1,000 = 2,000 rials, i.e. 1,000 rials per existing share.
Traps that cost marks
Assuming a rights issue automatically harms existing holders; confusing the record date with the payment date; believing revaluation generates cash; forgetting that unexercised rights expire or are sold and the holder is diluted.