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Reliance Industries share price jumps over 2% as brokerages cheer the upcoming rights issue

May 11, 2020, 10:53 IST
Business Insider India
Mukesh Ambani, chairman and managing director of Reliance Industries LimitedBCCL
  • Reliance Industries’ Board approved a rights issue offering shareholders 1 share at ₹1,257 for 15 existing shares.
  • With the record date being set to May 14, investors still have until Thursday to buy RIL shares to have the right to subscribe to new shares for a discount of 20%, based on the closing price as on May 8.
  • With this rights issue, RIL will mop up ₹53,125 crore which will go towards paring its debt.
  • In its bid to go debt free by the end of March 2021, RIL has entered into partnerships with Facebook, Silver Lake and Vista Equity to raise ₹60,597 crore.
  • In total, RIL will have raised ₹1,13,722 crore when the rights issue closes.
Mukesh Ambani’s Reliance Industries has set May 14 as the record date for its mega rights issue worth ₹53,125 crore. The company’s Board approved the first rights issue in three decades at a price of ₹1,257 per share, which is nearly 20% lower than its closing price as of May 8, 2020.

“The rights issue committee, constituted by the board of directors of the company, has, at its meeting held today (Saturday, May 9), fixed May 14 as the 'record date' for the purpose of determining the equity shareholders entitled to receive the rights entitlement in the rights issue (eligible shareholders),” the company said in a regulatory filing on Saturday evening.

With its rights issue, Reliance aims to pare its debt further. Ambani has also partnered with Facebook, Silver Lake and Vista Equity who have invested ₹43,574 crore, ₹5,656 crore and ₹11,367 crore respectively in the company’s telecom arm Jio Platforms. In the last one month, RIL has raised nearly $8 billion from external investors in the middle of a pandemic, leading to a rally in the share price.

RIL share price over the last monthBSE / Business Insider India / Flourish

Beating market sentiment, the RIL share price has jumped by more than 50% over the last one month. In comparison, the BSE Sensex and Nifty50 have grown by a mere 3%.

A research report by Kotak Securities gave a 'Buy' rating to RIL. "We believe the sharp 29% correction in RIL over the past three months presents an opportunity to BUY as the stock has adequately factored weakness in downstream margins and ruled out deleveraging post market's knee-jerk reaction on lower-oil-price-led-concerns on the O2C transaction with Saudi Aramco, while ignoring the favorable developments in telecom business," the report said.

Centrum Broking expects RIL's debt to equity ratio will drop by half to 0.4x by March 2022

Research agency Centrum Broking said in its report that it expects RIL's debt to equity ratio will drop by half to 0.4x by March 2022.

This means that for every ₹1 contributed by shareholders towards the company's equity, RIL will have ₹0.4 worth of debt.
A reduction in the debt to equity ratio means that the risk to shareholders is reduced. It is worth noting that the ideal debt to equity ratio varies based on the industry.

The rights issue opening and closing dates would be informed separately, it said.

The proposed rights issuance will be the first by RIL in three decades. The issue will be structured as partly paid shares and will enable shareholders to phase out the outlay on their investment over time.
With inputs from IANS.

See also:

Mukesh Ambani offers Reliance Industries shareholders 1 new share for every 15 held⁠— at a price 14% below market value

Reliance Jio’s 2.23% stake sale to Vista means its raised $7.95 billion in under three weeks

Facebook’s investment in Reliance Jio boosts RIL share value by ₹50,000 crore
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