RIL's 'rights entitlement' sees massive demand in secondary market

Investors paid as much as Rs 212 to trade their 'rights entitlement' for an attractive price

Shareholders of Reliance Industries (RIL) got a chance to cash in on the rights issue on Wednesday, much before being allotted the new shares, or even the money moving out of their account. 

Thanks to the new trading avenue introduced by the Securities and Exchange Board of India (Sebi), eligible shareholders of RIL were able to trade their ‘rights entitlement’ (RE) for an attractive price.

Investors paid as much as Rs 212 to invest in the RE — akin to buying a permit to be eligible for participation in the Rs 53,125-crore rights issue. 

Buying interest was huge, with nearly 32 million units changing hands. A total of 442.6 million shares are being offered; nearly half will be subscribed to by promoters, given they hold 50.07 per cent stake. 

One RE will give an investor the option to subscribe to one RIL share in the rights issue, which opened simultaneously on Wednesday. On the first day, the issue was subscribed about 1 per cent. However, bulk of the subscription in any rights offering usually comes closer to the last day of the issue, which is June 3 for RIL.

 RIL RE’s closing price was Rs 212 on the NSE, nearly 40 per cent higher than the opening price of Rs 152. Trading in RIL RE will continue till May 29. 

 

 

RIL has fixed the rights issue price at Rs 1,257 per share. Meanwhile, the RIL stock closed at Rs 1,437.4, up 2 per cent on the NSE. The difference between the current price and rights issue price is Rs 180.4, or 14.35 per cent. Technically, the cost of acquisition for one share for those buying REs in the secondary market works out to Rs 1,469 (Rs 1,257 plus the RE price of Rs 212). Market players said the premium of Rs 32 was to factor in the interest cost. 

“Investors have to pay only a fourth of the amount, and the remaining 75 per cent over the next 18 months. Purely by adding the interest cost of 9 per cent for an 18-month period, those subscribing to the RE at the current price still stand a chance,” said S P Tulsian of sptulsian.com, an investment advisory firm. 

The RIL rights issue will be carried out in three tranches. Shareholders will have to pay 25 per cent of the issue price (Rs 314.25) during the first, another 25 per cent (Rs 314.25) during the second in May 2021, and the remaining 50 per cent (Rs 628.5) during the third, in November 2021. 

Those participating in the rights issue will have to make these staggered payments, irrespective of where RIL shares trade in the secondary market. Brokerages have advised their clients to subscribe to the rights issue.

“We are recommending investors to subscribe to the rights issue, as we are positive on its future prospects, given the strong traction in digital and retail business. Based on sum of the parts valuation, we have a 

target price of Rs 1,748,” said Jyoti Roy, DVP Equity Strategist, Angel Broking.