Suzlon Energy has announced a Rs 1200 crore rights issue. Its shares rallied after Dilip Shanghvi, the Managing Director of Sun Pharmaceutical Industries, expressed willingness to participate in the upcoming rights issues fully.
The subscription for the rights issue will open on October 11, 2022, and close on October 20, 2022. The company will issue 240 crore equity shares with a face value of Rs 2 per share at Rs 5 per equity.
Let’s begin by understanding: ‘what is a rights issue?’
What is a rights issue?
The rights issue is an offer to the existing shareholders to buy additional shares. Cash-strapped companies can release rights shares when they need to raise additional funding. The offer gives the right to the shareholders but not the obligation to buy new shares of the company at a discounted price.
The rights offer gives shareholders securities called rights. With the rights, the shareholders can buy new shares at a lower rate than the current market price on a fixed future date. Individuals can increase their exposure to the company by committing to the rights issues.
Before subscribing to the rights issue, investors should know a few things, like the rights issue ratio. Rights issues are shared on a pro-rata basis at a fixed rate. Suzlon Energy rights issues will be available at a ratio of 5:21. For twenty-one shares, shareholders will receive five rights issues at Rs 5 (including Rs 3 premium).
Suzlon company overview
Founded in Suzlon 1995, Suzlon has expanded rapidly in the field of wind energy in the world through its technological and product innovation. Currently, they are present in seventeen countries. With more than 12,380 wind turbines installed on six continents and 14 manufacturing facilities across India, Suzlon has cemented itself as a key player in its domain.
The company is involved in manufacturing wind turbine generators. Besides, it provides wind power generating corporations with turnkey solutions in wind mapping and operation and maintenance services.
Suzlon debuted in the market in 2005.
Objectives of the rights issue
The company proposes to utilise the fund for repayment and prepayment of specific outstanding borrowings and general corporate purposes.
Eligibility for the rights issue
Rights issues are released in the primary market. But unlike initial or follow-on public offerings, rights issues are not open for general shareholders. It is available only to the existing shareholders.
To participate in the rights issue, the shareholder must own the company’s share as on the record date. The shares become ex-rights one day before the record date. If you buy shares on or after the ex-date, you can’t apply for the rights shares. It is because it takes t+2 days to deliver the equities to the investors’ Demat, and you’ll not qualify as an existing shareholder on the record date.
Terms of payment
Initially, shareholders will have to pay Rs 2.5 or 50 percent of the rights issue at the time of application and the remaining amount on subsequent calls.
Important dates of Suzlon rights issue
|Record Date||October 4, 2022|
|Credit of Rights Entitlements||October 10, 2022|
|Bid/Offer Opens On||October 11, 2022|
|Renunciation of Rights Entitlements||October 14, 2022|
|Bid/Offer Closes On||October 20, 2022|
|Deemed Date of Allotment||October 31, 2022|
|Credit Date||November 1, 2022|
|Listing Date||November 3, 2022|
How to apply for Suzlon rights issue
Here is a step-by-step guide to applying for the rights issue.
1. Eligible shareholders will receive rights entitlement (RE) in their Demat account before the issue opens. The RE is a temporary form of securities in the Demat and not the actual shares.
2. Demat account holders can apply for the rights issue through ASBA. You can also apply online if your bank supports online applications.
3. You’ll need to provide the following details.
- Cheque/DD details (non ASBA)
- Depository participant’s IP
- PAN number
- DP details – DP Id and beneficiary number
- Signature -in the case of a joint account the form should contain the signatures of both parties
4. In case you want to split your rights issue, you need to fill in Part D of the application form.
The registrar for the offer is KFin Technologies Ltd.
Should you subscribe?
Whether or not to subscribe to the rights share is a personal investment decision. If you don’t want to buy the rights shares, you can let your rights expire. But it is not usually recommended. If you ignore the offer, your shareholding will get diluted due to the extra shares issued by the company.
Suzlon has been struggling with debt ever since the global economic crisis in 2008. It has undertaken multiple debt restructuring attempts to reduce its debt burden.
The company is slowly moving back on the profit path. The wind turbine maintenance vertical has been making steady profits for the last few years.
As on October 10, 2022, Suzlon Energy share Price at BSE stock exchange was Rs 7.65, meaning the rights issues will be available at a discounted price. The company will use the fund to pare their refinanced debt. It announced to use the Rs.2800 crore to reduce its debt which will help the company save Rs 90 crore annually on interest payments. After the announcement of rights issues, the stocks were up by 2 percent.
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Disclaimer: This blog is exclusively for educational purposes. The securities quoted are exemplary and are not recommendatory.