In the current gloomy scenario, when there are many companies that are still not coming out with an IPO, there is a company which is not fearing raising more and more capital on its journey to become a debt - free company and that's the reason Reliance Industries(RIL) is coming with rights issue.
So, what exactly is the rights issue?
Basically, it is an invitation to existing shareholders to purchase additional new shares in company at a discount to the market price on a stated future date. Unlike IPO, in order to exercise your right you should be holding shares of the specified company as on record date ( a specific date announced by the company , you should be a shareholder of the company as on that date).
Why it created a buzz in the market?
Although many companies like Idea, Airtel recently came up with a rights issue still when it comes to RIL there is a big buzz in the market. The reason being that it has been almost 30 years (that is, 3 decades) since RIL had issued a rights issue and now it has announced the biggest rights issue of Rs. 53,125 crores.
Announcement of Rights issue and how will it be done?
Reliance Industries on 30th April, 2020 in its Board meeting announced its Rs. 53,125 crores rights issue which will open for subscription on May 20 and the closing date is June 3, 2020. The record date for determining the shareholders' eligibilty to apply for the issue was fixed as on May 14, 2020. Right shares are said to be issued in the ratio of 1:15 ( 1 share for every 15 shares held in Reliance ) at a price of Rs. 1257, a discount of 14 percent as on April 30, 2020 ( nearly 13 percent discount to the closing price as on May 18, 2020). The terms of payment for the said subscription is gonna be 25 percent on application and balance in one or more calls as may be decided by the Board from time to time.
What happens to any unsubscribed shares in the issue?
Mukesh Ambani, along with other controlling shareholders who holds 50 percent stake in RIL have confirmed that in addition to buying the full extent of their entitlement, they will also subscribe to all the unsubscribed shares in the issue.
Why the rights issue has been done?
A rights issue is a way by which a listed company can raise additional capital without going to the public (that is, by offering to its existing shareholders the newly issued shares in proportion to their existing holdings). As for Reliance Industries, the rights issue is a part of RIL's plan to become a zero - debt company by 2021.
Should you invest?
As an investor, you should be able to look beyond the discount offered. No doubt that the commitment of the promoter to buy the unsubscribed portion too in addition to his portion shows confidence in the company, still an investor should subscribe to it only if one is completely sure of the performance of the company and its future prospects.
How to apply for the Reliance rights 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 and send the rights application form electronically to the email ID mapped in their demat account.
- The RTA will also credit the rights entitlement (RE) receivable by the shareholders to their respective demat accounts. In case you do not want to apply for the rights, you can sell these REs after they are credited to your demat account like you sell shares from your holdings.
- SEBI has allowed the process to subscribe to the rights issue to be slightly modified during the lockdown period.
- Once the issue opens on May 20th, you will be able to visit the RTA's website and directly pay for your application from your bank account using the RTA's payment gateway.
- The RTA will collect the following details on their website:
- DP ID & Client ID
- PAN
- Bank account details
- RTA's site for Reliance Industries: https://rights.kfintech.com/
By CA Nimisha Salampuria
Mail at nimisha@commerceinsiders.com
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[Disclaimer:-This article is being furnished for informational purposes only. We make every effort to use reliable & comprehensive information, but we do not represent that the contents of the article are accurate or complete.]
