Rudra Shares & Stock Brokers Limited views on Reliance Industries Limited Right Issue.
Reliance has come out with a Right issue in the ratio of 1:15 i.e equity shareholders holding 15 shares would be allotted one equity share of Rs 1257 each. To subscribe to the issue, an upfront payment of 25% could be done & for the remaining amount payment to be done in tranches of 25% in May 2021 & balance 50% to be paid in November 2021. Talking example of 1 share held, the shareholder needs to pay:
1)25% upfront which is Rs 314.25 2) 25% in May 2021- Rs 314.25
3) 50% in Nov.2021- Rs 628.50
The entitlement is being credited to the demat account of the shareholder. Rights holders will be able to trade their entitlement on a separate window which is RIL- RTS on exchanges till 29 May 2020 where holders can sell and renounce their entitlement.
LEVERAGE BENEFIT
As only 25% of the payment being made upfront, one can be saved and avail the benefit of leverage by paying in installments (or by either selling holding).
Trading
of the RE would be allowed only till 29 may which is being monitored by SEBI.
For instance, the RIL-RTS has closed at Rs 202 and an upfront of Rs 314 needs to
be paid (25% upfront) which aggregates to Rs 516. Suppose if RTS to appreciate
around 15-20% in medium to long term tenure (6-12 months) then, it is always
prudent to go with that. As by an investment of Rs 516, which is around one third to
the Reliance share price, an investor would get the same benefit and return would
shoot up with just one third investment.
Date schedule
Issue Opening Date
Issue closing Date
Date of allotment
Date of credit (Demat Account) Date of Listing
Discovery of RE price
May 20, 2020 June 3, 2020 June 10, 2020 June 11, 2020 June 12, 2020
If we calculate the value the buyer should actually pay to the seller in an exchange of RE it should be around Rs 175-180.
For applying to the right issue, investor should get the benefit of Rs 180 directly as, Reliance is trading at (say) Rs 1437 & right issue is of Rs 1257. Hence, the basic premium should be Rs 45 (180*25%). However, while selling the same seller losses the value of Rs 135=180-45 and is gained by the buyer.
Actually, the buyer should have paid additional Rs 135 at a discounted rate. If we discount the same at 6% for one year then the proportionate value should somewhere fall in between Rs 129-130. Thereby, a fair value of Rs 45+130=175 should be paid to the seller by buyer.
So, if Reliance increased by say Rs 100, the RE would similarly increase in the same proportion which is around Rs 260-270. Thereby, an immediate gain of around 50% can be achieved in RE.
What should you do?
In case you want to invest in RIL so instead of investing in Reliance share, one should go for RIL-RTs as the immediate benefit of leverage can be availed.
Note: The report is prepared solely for informational purpose and does not constitute an offer document or solicitation to buy or sell or subscribe for securities or other financial instruments for clients.
