Airtel rights entitlement price could be Rs 60-70 per share: Analysts

Existing shareholders of telecom major Bharti Airtel may be able to sell their rights entitlement (RE) between Rs 60 and Rs 70 per unit, according to analysts’ calculation based on the current market price and rights issue price. To be sure, the value of RE could change in the run up to the rights issue allotment depending on how the shares of the telecom major behave over the coming month.

Airtel on Sunday announced a fund raise of Rs 21,000 crore by way of rights issue, which is structured on the lines of highly successful Rs 53,125-crore rights issue by rival Reliance Industries (RIL) last year.

The Sunil Mittal-led firm has set the rights issue price of Rs 532 per share, at a discount of 15 per cent to the last closing price of Rs 625 per share. The company is yet to announce the ex-date, RE trading window and allotment timelines for the rights offering.

Similar to RIL, shareholders participating in the rights issue programme will have to pay just 25 per cent of Rs 532 at the time of application. The balance 75 per cent will be collected by the company in two or more calls at a later date to be decided by the company.

The rights entitlement ratio set by the company is 1 for 14. In other words, those holding 14 shares of Airtel on the ex-date, will be eligible for one share under the rights programme. Shareholders can either subscribe to partly paid up shares in the rights issue or sell their entitlement under a special trading window that opens at the time of the rights issue.

Given the current price dynamics, analysts said, the price of one RE could be as much as Rs 70 per share.

“We expect Airtel RE to trade in the range of Rs 60-Rs 70 per share. This is because the existing shares trade at a 15 per cent premium to the rights issue price. It means the future calls are in-the-money. Those buying the RE will not just pay this difference but also a premium to subscribe to the balance 75 per cent at a discounted rate,” explained an analyst.

He said last year investors had paid a huge premium in RIL’s RE trading window.

Market experts said for any partly-paid rights issue to be successful the existing shares have to trade at a premium to the rights issue price.

Passive funds to sell RE

Airtel is widely held by passive funds as the stock is part of various indices such as the Nifty, Sensex and also global indices compiled by the MSCI and FTSE. Experts said such investors will be forced to sell the shares of Airtel as they are not allowed to hold partly paid up shares. These will provide a buying opportunity to retail as well as active fund managers, they added.

“As indices don’t permit to retain partly paid rights, passive managers will have to sell the renunciation forms (RR-forms) when the window for trading starts…Similar to RIL, Airtel partly paid up will offer holders an opportunity to hold the stock at lower value in the portfolio as against the fully paid up shares. The unpaid value on partly paid shares can be deployed elsewhere,” said Sriram Velayudhan, Vice President – Alternative Research, IIFL-Institutional Equities in a note.

Partly paid shares of Airtel will be listed and traded separately until the company exercises all the call options and the security gets converted into fully-paid.