Maintaining Investor Stake Through Rights Issue

Offering new investors a discount on the last valuation can create a temptation for them to invest, as they might think they are getting a better deal. However, if new investors do not take the bait, exercising a rights issue becomes necessary. This allows existing investors the first right to buy new shares to maintain their stake in the company. Failure to do so could result in existing investors seeing their stake halved as new shares are issued at a discount, diluting their ownership.