Experts give thumbs up to RIL’s rights issue, term it as an opportunity for investors

Experts give thumbs up to RIL's rights issue, term it as an opportunity for investors thumbnail
Reliance Industries (RIL) on April 30 announced India's biggest rights issue of Rs 53,125 crore.In the ratio of one for every 15 equity shares held by shareholders, the issue will be available at a price of Rs 1,257 per share against the closing of April 30 at Rs 1,467.05 per share.The proposed rights issue would…

Reliance Industries (RIL) on April 30 announced India’s biggest rights issue of Rs 53,125 crore.In the ratio of one for every 15 equity shares held by shareholders, the issue will be available at a price of Rs 1,257 per share against the closing of April 30 at Rs 1,467.05 per share.The proposed rights issue would be the first by RIL in three decades. The last time when RIL offered shareholders the right to buy new shares was in September 1991.The move is a step forward towards the company’s aim to become a zero-net debt company by March 2021.An opportunity for investorsThe rights issue strengthens the capital structure of the company and reaffirms promoter commitment to the business.Jyoti Roy, DVP Equity Strategist at Angel Broking said that the rights issue announcement by Reliance Industries has come on the back of a 10 percent equity purchase by Facebook in Jio platform, which, along with the right issue will help Reliance Industries deleverage its balance sheet.”We expect growth to be driven by the telecom and retail business over the next few years. Refining and petrochemicals business would be stable but major cash generators for the company given negligible capex requirements. The cash flows would be used to fund expansion into other businesses,” said Roy of Angel Broking.Reliance reported healthy growth in its digital, telecom and retail segment for the fourth quarter of FY20 and these areas are said to be the growth engine for the company going forward.The rights issue presents an opportunity for existing shareholders to participate in the growth of its digital, telecom and retail business, along with the traditional business, and reap benefits from value unlocking of new businesses over the next few years.”This sends a positive message to potential investors. The key message the rights issue sends is that the promoters are solidly invested in the business irrespective of the moves to gradually unlock value in each business segment via strategic sales and investments,” said brokerage firm Centrum Broking.”With the Facebook deal already done, the imminent closure of the tower and fibre InVit and the ongoing negotiations with Aramco to sell 20 percent in the oil to chemicals (OTC), the infusion of fresh equity by the promoter group would inspire confidence in the respective business by existing and prospective strategic investors,” Centrum said.Vinod Nair, Head of Research at Geojit Financial Services said the rights issue is a sign of promoters’ confidence in the business and it gives confidence to the shareholders.”This is also a sign of promoter confidence in the company, with the Ambanis being the major subscribers to the rights issue (50 percent stakeholder), and should give confidence to shareholders,” Nair said.”For shareholders, this rights issue gives an opportunity to own more shares, and participate in the growth of the company. The company is currently on an expansion mode, as it diversifies from a petrochemical giant and forays into the digital and retail sectors,” said Nair.The promoters- the Ambani family- hold 50.03 percent equity in RIL. The promoters will subscribe fully to the rights issue to the extent of their holdings and will also take up any unsubscribed shares in the issue.The huge equity infusion by the promoter group to the tune of Rs 26,500 crore indicates the promoters’ unwavering faith in the long-term prospects of RIL’s various businesses.Experts highlight that RIL could contemplate listing the consumer businesses (retail as well as telecom) as and when markets turn conducive and also induct strategic partners in these businesses in the near to medium-term.Disclaimer: Reliance Industries Ltd. is the sole beneficiary of Independent Media Trust which controls Network18 Media & Investments Ltd.The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.Moneycontrol Ready ReckonerNow that payment deadlines have been relaxed due to COVID-19, the Moneycontrol Ready Reckoner will help keep your date with insurance premiums, tax-saving investments and EMIs, among others.First Anniversary Offer: Subscribe to Moneycontrol PRO’s annual plan for ₹1/- per day for the first year and claim exclusive benefits worth ₹20,000. Coupon code: PRO365
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