Reliance Industries, the largest listed company by market capitalisation, has announced the biggest ever rights issue that is set to open on May 20.
The company said the proposed rights issuance will be the first by RIL in three decades. This rights issue is a part of the company's deleveraging plan and as a result, the company will be net debt free by March 31, 2021.
Reliance Industries has already garnered Rs 67,195 crore through stake sale in Jio Platforms in four weeks ahead of its rights issue.
Reliance Industries sold a total of 14.81 percent stake in its wholly owned subsidiary, Jio Platforms, to three private equity investors - Silver Lake, Vista Equity Partners and General Atlantic - and Facebook Inc.
Facebook deal was the biggest as Jio raised Rs 43,574 crore by selling 9.99 percent stake to the WhatsApp owner.
Here are the five most important things that investors must know about the Reliance rights issue:
Opening and Closing Dates
The subscription for rights issue will open on May 20 and the closing date is June 3, 2020.
Rights Issue Size
Billionaire Mukesh Ambani-owned Reliance Industries' rights issue size is Rs 53,125 crore and it will issue 42,26,26,894 equity shares.
India's biggest ever right issue has been priced at Rs 1,257 per share which had ex-right date at May 13, 2020.
Prashanth Tapse, AVP Research at Mehta Equities feels rights issue is fairly priced. "As against the last closing price of RIL shares of Rs 1,458.90 on May 15, the rights issue price of Rs 1,257 apiece is decently attractive, with a discount of 16 percent.
Rights Issue Ratio
The rights entitlement ratio is 1 equity share for every 15 equity shares held by eligible shareholders as on the record date which was May 14
Terms of Payment of Issue Price
The terms of payment will be 25 percent on application and balance in one or more calls as may be decided by the board of directors from time to time.
At the time of application, shareholders will pay Rs 314.25 per rights equity share (face value Rs 2.50 + premium Rs 311.75), and the balance amount of Rs 942.75 will be payable in one or more subsequent calls as determined by the board of directors, from time to time.
Accordingly, the company proposed the schedule for payment of the balance amount of Rs 942.75 per rights equity share. Shareholders can pay Rs 314.25 i.e. 25 percent in May 2021; and Rs 628.50 i.e. the balance 50 percent in November 2021.
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.
Objects of the Issue
The reason to come out with rights issue to existing shareholder is to pare down the company's debt which over the years has piled up through expansion of its retail and telecom arm and make company a net debt free by March 31, 2021.
Part of Capital Raising Programme
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 FY2019-20.
Opportunity for Investors
"Existing investor can look this offer as opportunity which gives shareholder to be part of the company's growth prospects in new and emerging domains including retail, telecom and digital avenues," Tapse told Moneycontrol.Disclaimer: Reliance Industries Ltd. is the sole beneficiary of Independent Media Trust which controls Network18 Media & Investments Ltd.