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RIL's Rs 53,000 cr rights issue opens May 20; should you subscribe?

The issue offers a good opportunity to the investors planning to increase equity exposure in the company, experts say

Ashish Pandey | May 18, 2020 | Updated 17:17 IST
RIL's Rs 53,000 cr rights issue opens May 20; should you subscribe?
RIL Chairman Mukesh Ambani

The Rs 53,125 crore rights issue of Reliance Industries Limited (RIL) will open on May 20 and close on June 3. India's biggest and first such issue by the firm in nearly three decades offers one share for every 15 held at Rs 1,257, a 14.8 per cent discount from the current market price (CMP). The last time RIL tapped the public for funds was in 1991 via convertible debentures. But, considering the ongoing volatility in the stock markets, should investors subscribe to the rights issue?

The issue offers a good opportunity to the investors planning to increase equity exposure in the company, Deepak Jasani, Head of Retail Research, HDFC Securities, told BusinessToday.In. There are very few companies that show the strength to withstand disruptions and have value unlocking triggers in the current scenario, Jasani added.

"However, if one is afraid of equities now, then he can ignore the issue and also look to sell his original holdings in Reliance," Jasani noted. Adding, he said that the facility of making part payments is beneficial for shareholders in terms of parting liquidity. Of the Rs 1,257 per share price, only 25 per cent is to be paid at the time of subscription. A similar amount will be due for payment in May 2021 and the balance 50 per cent has to be paid in November 2021.

The rights issue is also being seen by analysts as an attempt by the company to cut its debt. At the end of March quarter, RIL had an outstanding debt of Rs 3,36,294 crore. It also had cash in hand of Rs 1,75,259 crore, bringing the net debt position to Rs 1,61,035 crore. "We believe RIL's rights issue offered is a part of the company strategy that would help in deleveraging its balance sheet and achieve its target of reducing its net debt to zero by 2021. Further, we have a positive view on the company's growth prospects going ahead. Notably, the rights issue offer price (Rs 1,257) is trading at a discount of 14% (compared to the last closing price of Rs 1,459 on May 16, 2020) so one can apply to the rights issue," Ajit Mishra, VP Research, Religare Broking, told BusinessToday.In

Commenting on the issue, Nirali Shah, Senior Research Analyst, Samco Securities, said, "With 4 deals bringing around Rs. 67,000 Cr to the table, it is almost certain that Jio will be demerged and listed, unlocking value for a number of shareholders such that the sum of parts will be much greater than the whole. Reliance Retail is also expected to eventually demerge, therefore  shareholders in a holding company structure are always bound to benefit. Although, the stock price may experience some quarters of pain but over the long term 2-3 years horizon shareholders will certainly benefit."

Shares of RIL ended the intraday trade at Rs 1,442.55, down 16.85 points, or 1.15 per cent from previous close on NSE. On Sunday, Reliance Jio, the telecom arm of RIL, announced an investment worth Rs 6,598.38 crore by General Atlantic. Earlier, Jio announced a deal with Silver Lake and Vista Equity Partners worth Rs 5,656 crore and Rs 11,367 crore, respectively. It had also announced Rs 43,574 crore deal with social media firm Facebook.

Also read: India's GDP to contract 45% in June quarter, stimulus package 'strikingly smaller': Goldman Sachs

Also read: Coronavirus lockdown 4.0: What activities will be allowed in red zones from today?

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