RIL's grand rights issue set to open; share sale attractive for retail investors

MUMBAI: Asia's richest man Mukesh Ambani-owned Reliance Industries Ltd (RIL), which has been on a fundraising spree despite the covid-19 pandemic, is set to open its massive ₹53,215 crore rights issue on Wednesday.

The issue, which closes for subscription on 3 June, will be the largest such share sale the country has seen. The previous record was held by Bharti Airtel Ltd and Vodafone Idea Ltd, both of whom raised around ₹25,000 crore in 2019.

Reliance has hired a banker syndicate comprising 14 investment banks to manage the share sale, including Morgan Stanley, Citi, Bank of America, and Axis Capital.

Ahead of its rights issue, Reliance has stitched up deals worth ₹67,194.75 crore selling 14% stake in Jio Platforms to multiple investors including Facebook Inc. These deals coupled with the right issue are aimed at helping RIL reach its ambitious goal of becoming a zero net-debt company by March 2021. The company had a net debt of ₹1.53 trillion as of 31 December.

RIL has set a price of Rs1,257 apiece for subscribing to the rights offering. Investors keen on subscribing to the rights share will have their payments staggered over three instalments. They will need to pay 25% of the amount at the time of subscription, another 25% needs to be paid in May 2021, and the remaining 50% needs to be paid in November 2021.

Analysts tracking the company believe that Reliance Industries' ability to withstand disruptions and unlock even in times such as these makes its rights issue attractive for retail investors.

“The pricing of rights issue at ₹1,257 per share is a very confident pricing as promoters will be subscribing to almost half of the issue and raise ₹26,000 crore for the company. While the promoters and institution holders are long-term holders and will subscribe to the issue as the company’s prospects appear brighter than ever but this is also a critical stage for individual investors,” said Axis Securities.

At ₹1,257 apiece, the rights issue is priced at a discount to current levels, brokerage firm said. On Tuesday, shares of RIL closed at ₹1,408.15 apiece on the BSE.

According to Axis Securities, RIL's business-to-consumer (B2C) businesses offer high growth potential, with the discounted price of the rights issue providing a good price to participate in this high growth venture.

The issue--biggest in India so far--will also be a litmus test for stock markets, grappling with liquidity concerns.

After a 32% rally in April, the RIL stock has weakened this month. Currently, Reliance has 25 buy ratings, three hold and sell ratings by analysts on Bloomberg.

"If as an investor is looking at maintaining or increasing his equity exposure, then this issue can be subscribed. This is because at the current juncture there are very few companies that show the strength to withstand disruptions and have value unlocking triggers. Also the facility of making part payments is beneficial for shareholders in terms of parting liquidity,” said Deepak Jasani, Research Head, HDFC Securities.

The promoter group led by Mukhesh Ambani has committed to subscribe to any shortfall in the rights offering.

Brokerage firm Prabhudas Lilladher said promoters subscribing fully to the rights issue and taking up any unsubscribed shares in the issue exudes confidence. It said that the Reliance rights issue is credit positive coming on the back of multiple other investments by global majors including Silver Lake, Facebook among others.

.'..it would be advisable to apply for the issue especially given the ambitions RIL has – equivalent of becoming an Indian FAANG stock," said Prabhudas Lilladher.

The size of the issue is not only thing about the offering. RIL will be the first to raise funds through the route after the Securities and Exchange Board of India introduced trading of rights entitlements in 2020.

While institutional investors previously had the option of selling their rights entitlement, this is the first time retail investors will also be able to freely trade their rights entitlement on stock exchanges.

Rights entitlement renunciation gives the buyer the rights to buy the shares at the rights price.

The rights entitlement ratio is 1 equity share for every 15 equity shares held by eligible shareholders as on the record date which was 14 May. Retail investors will be able to trade the rights entitlements between 20 May and 29 May.