Mukesh Ambani led Reliance Group (RIL) has decided to become debt-free by March 2021, and it seems like the company is moving steadily towards its goal. Recently, it has raised $8 billion in foreign investment in deals with Facebook, Silver Lakes, and Vista PE, and now it declared the rights issue for its existing investors. It came as a surprise since it is the first time for Reliance to announce the rights issue in nearly three decades.
Naturally, it has created quite a stir in the market, and anticipations are running high among investors. So, what does the rights issue mean?
What is the rights issue?
Rights issues are often used by companies to raise funds, acquire assets, or clear debts. Rights issues typically entitle existing shareholders to purchase more shares of the company at a lower market rate. This discount is offered to encourage shareholders to buy more stocks and also to compensate them for diluted share prices.
The highlights of the RIL rights issue deal
- RIL rights issuedeal targets to raise 53,125 crores in India’s biggest rights issue sale.
- Existing shareholders will get a chance to boost their portfolio further with 1:15 rights issues. For every 15 shares of Reliance, the investor will be eligible to get one share.
- The selling price of the rights issue is fixed at 1,257/share, which is 14 percent less than the current market price.
- As a promoter and 50 percent shareholder, Mukesh Ambani will have to pump in 26,600 crores for his portion of the rights issue. Other promoters have also pledged to acquire their portions.
- Eligible investors will have to pay 25 percent upfront for their shares. The rest can be paid in one or multiple tranches.
- The Reliance has appointed nine investment banks, including Citigroup, Morgan Stanley, Kotak Mahindra Capital, JM Financial, Axis Capital and ICICI Securities, to manage the deal.
- 14thMay is fixed as the RIL rights issue record date.
What is the record date?
The record date is the cut-off date, announced by the board of directors of a company to decide which shareholders are entitled to receive a dividend. On 14th May, the Board of Directors of the Reliance will meet to review the rights of shareholders over entitlement of rights issue.
What is the market thinking?
The market has reacted positively to the news. Reliance shares have gained 3.4 percent in the market since the date is announced. Since Reliance is one of the big boys in NIFTY 50, it is going to have a direct impact on market performance in the coming days. Most experts are expecting the company shares to continue performing in the market. According to them, since all promoters have pledged to execute their rights to the rights issue, it shows the confidence that they have on the company.
In the past, rights issues from big companies have received a lukewarm reaction from the market. Rights issued by the top 10 biggies in the Indian Market, including Bharti Airtel, Vodafone, and the Tata Group had received a strike rate of 25-28% from shareholders. Compared to that, Reliance has received a more enthusiastic reaction from the market, which is certainly a good omen.
How can you apply for the rights issue?
The process is to apply through ASBA (Applications Supported by Blocked Amount). If your bank supports, you can apply online through them just like IPOs, or else, you will get courier of the Composite Application Form (CAF) from RTA (Registrar and Transfer Agent) of the company. You’ll need to submit the form at a Self-Certified Syndicate Bank’s (SCSBs) branch.
You’ll need to provide the following details in the form.
- Cheque/DD details (non ASBA)
- Your Depository Participant (DP) id. Select NSDL if it starts with IN otherwise, select CDSL if it contains only numbers.
- PAN number (also provide the PAN number of the second holder if it is a joint account)
- DP details – add DP ID and beneficiary number
- Signature (in case of joint account signature of both the parties will be required)
It will take around 15-20 days from the Book Closure Date for the stocks to get credited to your DMAT account.