RIL Rights Issue: Should you subscribe

Billionaire Mukesh Ambani owned telecom-to-petrochemicals giant Reliance Industries (RIL) Rs 53,125 crore rights issue, the largest ever in India, kicked off on Wednesday.
Investors remain apprehensive to the issue given the current scenario. The COVID-19 outbreak and a resultant impact on economy is clogging investors psyche.

Well, the issue remains quite attractive and existing shareholders should subscribe to the issue, given the RIL’s recent steps to deleverage its balance sheet and create value in retail and telecom ventures.
The fact that the promoter group intends to participate in the issue fully and has pledged to buy all the undersubscribed shares also offer additional comfort.

A rights issue is offered to existing shareholders identified as of the record date, which was May 14 in RIL’s case. For this particular issue, existing shareholders are required to pay only 25% of the money for subscribing to the rights issue, while the balance will fall due in two installments in May and November next year.
A lot of retail buying was seen in the RIL stock in the Rs 1,300-1,400 range. Such retail investors will have ability to get the scrip at Rs 1,257 level.

The flexibility in payments makes it even easier to buy the stock. An investor pays one-fourth of the due amount and invest in one of the best performing businesses at current price.
At Rs 1,438.10, the scrip traded 2.09% above the rights issue price in Wednesday’s trade. The company is offering 1 share for every 15 held as of record date, which was May 14.
Out of the total funds that will be raised, Rs 39,755.08 crore would go towards repayment or prepayment of a portion of certain borrowings availed by company. The additional shares are unlikely to drag earnings per share.

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