This is a Riskless Reliance Industries Rights Investment Strategy for those over 2.3 Million Shareholders already holding RIL shares.
It is not a recommendation to buy RIL cum rights
It’s a no brainer yet I’m just penning a brief note because some have told me they hold Reliance but are skipping the Rights !
Don’t !
I’ll keep this short without going into the fundamentals of RIL Operations and future which in itself is quite another story
Adopt this simple Riskless Rights Investment Strategy as below if you’re concerned about what the future holds for Reliance and don’t wish to increase exposure by increasing your holdings through the Rights Issue ….well,if you’re deeply concerned you should not have been holding Reliance in the first place
This Strategy will reduce your Holding Cost of existing RIL shares by replacing 1:15 of your holding with the Rights entitled shares at a much lower Rs 1257/share to currently traded prices(see below)
Chronology
Rights Terms
- Issue of 42,26,26,894 equity shares of Face Value Rs 10
- Issue Price is Rs 1257 including a Share Premium of Rs 1247
- Issue Ratio is 1:15 or One Rights share for every 15 held
- Issue Size is Rs 53124 crs
Computation of Ex-Rights Theoretical Price
Reliance is traded cum rights at Rs 1575 to Rs 1585 range just over half an hour before closing today,Monday,May 11,2020.It will trade cum rights only till tomorrow
- Value of 15 RIL shares currently at cum-rights price of Rs 1585 per share=>Rs 23775
- Price of 1 Rights Share as entitled =Rs 1257
- Immediate Value of Holding post rights adjustment will then be 16 shares for=>Rs 23775+Rs 1257=>Rs 25032
- Therefore ex-rights theoretical price is Rs 25032/16=> Rs 1564.50
Riskless Rights Investment Strategy
For ease of understanding and computation I have used a hypothetical Holding of 15 shares based on a 1:15 Rights ratio. You can extrapolate this to your actual RIL Holding to compute how many Rights Shares are you entitled to and sell that quantity in Step 1 as below and apply for the entitled shares in Step 3 to replace those sold
- Sell One Share immediately day after on ex-rights traded basis on Wednesday,May 13,2020 .Let’s assume this is @ Rs 1567 near the computation as above.You will thus be left with 14 shares
- This will immediately lock in a beneficial Rs 310 differential between Rights Issue Price and traded ex-rights Price and give you proceeds of Rs 1567
- Subscribe for your entitled One Rights Share at Rs 1257 when the Rights Issue Opens and before it closes on dates to be announced shortly.Payable on Application is only 25% or Rs 314.25 per share.You can thus use part of your proceeds to apply for the rights
- Your Holding in RIL will return to 15 shares which you held originally
- Your Holding Cost for your existing 15 shares will reduce by Rs 310/15 = Rs 20.67 per share.Have not considered the Tax Payable on the gains made on sale of the One share as above.This would be marginal
Promoters ,Ambanis who hold 50.03% of the Equity as on December 31,2019 have already said they will be participating in the Rights and will also subscribe to any under-subscribed portion.This of course serves as a reassurance but why should you let them take this advantage by transferring your risk-less differential to them if you opt wrongly to skip the Rights
You’re welcome to connect with me on [email protected] or even on my mobile +91-9820162597 if you need any further clarity on this
Cheers,
Gaurav
