Billionaire Mukesh Ambani-owned Reliance Industries’ mega rights issue opened on May 20 for subscription for existing shareholders.
The company proposed to raise Rs 53,125 crore through its biggest ever rights issue which will close on June 3, 2020, while the ratio is one rights issue share for every 15 equity shares held by existing shareholders as on record date (May 14).
The ex-date for rights issue was May 13, which implies that investors who bought Reliance shares before May 13 and hold those shares in their account before May 14 are eligible to apply for the rights issue.
The rights issue price has been fixed at Rs 1,257 per share, of which 25 percent of the amount i.e Rs 314.25 will be paid by the investors at the time of application. Another 25 percent i.e. Rs 314.25 per share will be paid by the investor in May 2021 and the balance 50 percent i.e. Rs 628.50 per share will be paid in November 2021 on-call by the company at the relevant time.
Analysts advise existing investors to subscribe to the rights issue given the current and expected healthy growth in Jio Platforms and Retail.
To Know 9 Key Things About Rights Issue, Click Here
“We advise existing shareholder/investors to exercise the rights and ‘Subscribe’ to the issue offered by RIL which is similar to that of investing in a company future growth and remain invested in the stock for at least 2-3 years to see the benefit colouring,” Prashanth Tapse, AVP Research at Mehta Equities told Moneycontrol.
“Availing rights just because the offer is at discount to market price is not the only parameter to consider,” he said, adding investors should also look at factors such as growth prospects and the reason behind the company’s decision to come out with a rights issue and so on.
Vineeta Sharma, Head of Research at Narnolia Financial Advisors also advised investors to apply for shares in the rights issue.
Experts feel the company’s consistent investment in lot of technology related firms, and big investment from lot of marquee investors recently in the Jio Platforms clearly indicated that company has been marching towards becoming a tech giant with the aim to move beyond normal telecom operations.
Promoter and promoter group with 50.07 percent stake have pledged to buy the full extent of their entitlement and also subscribe to all unsold shares in the rights issue, which shows the promoters commitment and confidence in the company’s future growth prospects, Tapse said.
Also its aim to become net debt-free by March 31, 2021 will be achieved well before the deadline. This will strengthen the balance sheet of the company and is one of reasons that induced experts to advise investors to subscribe the rights issue.
Marquee investors like Silver Lake, Vista, General Atlantic and Facebook Inc invested Rs 67,195 crore for 14.81 percent stake in Jio Platforms within last four weeks, ahead of this rights issue.
Also read: Jio bags 4th big investment in 4 weeks: General Atlantic to invest Rs 6,600 crore in RIL digital unit
“We believe subscribing to the issue makes sense after looking at the recent value unlocking deals like investments by Facebook, Silver Lake, Vista, General Atlantic and few news reports also say Saudi Arabia’s Public Investment Fund (PIF) is also considering to buy a minority stake in Jio in coming days,” Prashanth Tapse said.
“The Saudi Aramco deal investment is also still at the due diligence stage, we believe Aramco deal would also be closed before FY21 thus making it to get debt-free status,” he added.
Gaurav Garg, Head of Research at CapitalVia Global Research Limited – Investment Advisor also said investors should try to grab opportunity and should apply for the right issue. “Reliance Industries is making good moves to make itself debt-free. Recent deals might act as a catalyst and provide liquidity to the giant. For mid to long term, Reliance is worth investing.”
The company is expected to complete the capital raising programme totaling over Rs 1.04 Lakh crore by Q1 of the current financial year. This includes the investment by Facebook in Jio Platforms (already garnered Rs 43,574 crore), the upcoming rights issue and the previous investment by British Petroleum in FY19-20.
All the incubated businesses of Reliance – Reliance Retail, Reliance Jio are performing well and leaders in their segment. Reliance Digital services i.e Jio margins have improved from 18 percent to 20 percent in FY20 with topline growth of 40 percent. Similarly, the organized retail margins have improved from 4.2 percent in FY19 to 5.1 percent in FY20 with revenue growth of 25 percent in FY20.
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