Theoretical ex rights price

The theoretical ex rights price is what a share should be worth once the rights issue has happened. Add the new cash to the existing market value and divide by the total share count afterwards. It is theoretical because it assumes the market value of the business does not change on the news, which it often does.

Its real use is diagnostic. Once you can compute it, you can see that the subscription price does not transfer value to anyone who takes up their rights. A deeper discount means more new shares at a lower price and a lower theoretical ex rights price, and the two effects cancel exactly for a participating holder.

It also prices the right itself. A right is worth the theoretical ex rights price less the subscription price, because that is what someone buying the right is getting for the money they will then pay the company. A holder who sells their rights should therefore be left roughly whole.

The discount is best understood as a risk control. It buys a buffer between the market price and the subscription price so the offer still clears if the shares fall while it is open, which is what the underwriters are charging for. Treating it as a measure of how cheaply the company sold equity is the standard error.