The Rs 53,125 crore rights issue of Mukesh Ambani”s Reliance Industries Limited (RIL) will open for subscription on May 20.The closing date for the issue is June 3,2020. The rights issue of Reliance Industries Limited (RIL) will be priced at Rs 1,257 per share with share ratio at 1:15.
Not only is this the first rights issue by RIL in nearly three decades but also may rewrite the recent history of “rights” as the previous large rights issues by companies have typically had a strike rate of 25-28 % from shareholders. This includes the top 10 rights issues and all the large rights issues of the Tata group. And interestingly this is the third telecom related right sissue after Idea and Bharti in the recent past.
What is a rights issue?
When a company needs funds for expansion, acquiring assets, or clear debts, they have various options such as coming up with an initial public offer (IPO), follow-on public offer (FPO) or a rights issue.
A rights issue is a way by which a listed company can raise additional capital. However, instead of going to the public, like in an IPO or FPO, the company gives its existing shareholders the right to subscribe to newly issued shares in proportion their existing holdings. In a rights issue, unlike bonus issue etc , a company asks shareholders to come up with new money by paying for these shares but at a discount price as it leads to dilution post issue and impacts existing shareholders.
The Reliance Rights Issue
The company has opted for the right issue to mainly reduce its debt ,in line with its stated purpose of becoming debt-free by March 2021.
The right issue is an investment opportunity for existing shareholders to purchase additional shares in the company.
| Ratio | 1:15 |
| Issue Price | ₹ 1257 |
| Issue Period | May 20th to June 3rd |
The existing shareholders are allowed to subscribe to one equity share for every fifteen shares held. The promoters will subscribe to the full extent of their rights and also to unsubscribed shares at the end of the issue.
So, if a shareholder owns 150 shares on the record date, she or he will get the chance to buy 10 right issue shares. However, it is not compulsory for an existing shareholder to opt for the rights issue, one may refuse to subscribe to the rights issue and just let your “right” lapse.
How rights issue work?
You have three options that you can exercise during a rights issue:
1. You can subscribe to the right issue in full and additional shares as well
2. You can Ignore your rights
3. Or you can sell the rights to another interested investor
Dematerialized Rights Entitlement Trading
In January 2020, SEBI had issued a circular where the process of dematerialized rights entitlement trading was announced. The RTA will credit the rights entitlement receivable by the shareholders to their respective demat accounts.
Eligible shareholders will receive the rights entitlement (RE) in their demat accounts before the rights issue opens. The RE will be in the form of temporary demat securities which will lapse if not renounced/exercised. Even if you hold physical shares, you will receive the RE in demat form once you provide your demat account details to the registrar of the company in the form they specify.
You will be able to sell your REs like you sell stocks from your holdings but you will not be able to transact the REs intraday as they will be settled on a T2T basis. STT at 0.05% of the value of RE is levied on the seller of the RE.
Futures and Options Contracts
The FNO contracts were already revised in size on May 13 as per the circular below – the calculations are also available in it for you to see how the adjustment is done: https://www.bseindia.com/markets/MarketInfo/DispNewNoticesCirculars.aspx?page=20200511-26
How to apply for RIL right issue?
The Registrar and Transfer Agent (RTA) of Reliance Industries Limited will check the eligible shareholders who hold the shares of the company as on the record date – 14 May 2020. The issue will be open between May 20th and June 3rd.
You are eligible for the application of the Reliance rights issue if you hold the shares of RIL on the record date. The application could be submitted in any of the foollowing ways:
- You can use your bank payment gateway via ASBA to submit your application just like an IPO.
- SEBI has allowed the process to subscribe to the rights issue to be slightly modified during the lockdown period. You will be able to visit the RTA website at Karvy and directly pay for your application from your bank account using the RTA’s payment gateway. You will need to keep your DP ID , Pan Number, Bank account number & Client ID handy for the same-.
- The normal process of banking of the physical forms is also available
Should you invest
The issue will also test the market’s appetite for such a large issue at a time the country is in a lockdown because of the coronavirus uncertainty as well as global crude supply overhang. Of course, the Reliance rights issue is credit positive coming on the back of multiple other investments by global majors including Silver Lake, Facebook etc as well as its internal reorganization of businesses to be able to leverage the digital space.
Despite the coronavirus outbreak and lower oil prices, RIL has also confirmed that the due diligence process for the Saudi Aramco transaction is on.
The promoters- the Ambani family- hold 50.03 percent equity in RIL and have stated they will subscribe fully to the rights issue to the extent of their holdings and will also take up any unsubscribed shares in the issue. This exudes confidence.
Since at the ratio of 1:15 and only 25% on call, the capital commitment is not very high i.e. less than 7% of your capital cost, and given that the dilution in shareholding may create pressure on the stock slightly, it would be advisable to apply for the issue especially given the ambitions RIL has – equivalent of becoming an Indian FAANG stock.
Get in Touch
Our Advisors can help you process your rights issue application as well as open your demat accounts for physical shares or to guide you through the issue itself. Please do contact us at any of our national network of offices (https://www.plindia.com/contact_us.aspx) or email us at advisorydesk@plindia.com for more information.