RIL Rights Issue Investors Sitting On Profit Of 30% And More

New shares that Reliance Industries Ltd. issued, subsequent to a rights issue to raise capital, have surged since their debut. These are partly paid shares and yet they trade at a minor premium to ordinary shares. Though some shareholders may have already made much higher gains, ranging from 30% to 100%.

Shareholders will also have to pay Rs 942.75 more to get full ownership. Which means, the intrinsic value of each partly paid share is Rs 1,639.75. That’s a premium of nearly 2% over RIL’s June 17 closing share price.

Till this intrinsic value of the partly paid share remains higher than the current market price of the ordinary share, there will be interest in them. But once the value falls below the current market price of ordinary shares, it’s likely to trigger profit booking in partly paid shares.

Given the long-term nature of the investment, the shares are expected to move in sync with the ordinary shares and converge at the point of the third instalment.

The biggest trigger for RIL has been investments worth more than $14 billion in Jio Platforms Ltd., the holding company of the group’s telecom and digital businesses, to pare debt. And there’s still a plan to sell stakes in fibre and oil and chemicals units.

Morgan Stanley, while resuming coverage, assigned a 12-month target price of Rs 1,801, implying an upside of about 12%. To be sure, average of 12-month estimates complied by Bloomberg show little upside after the stock surged following multiple funding rounds.

Citing deleveraging as the key for re-rating, Morgan Stanley expects the company to cut net debt by half by the end of March. The next leg of asset monetisation driven by energy business will take next debt near zero, it said.

Amid optimism, foreign investors showed interest in the rights issue. Their ownership of RIL rose from 23.48% to 24.15% after the new shares were issued. The number of foreign portfolio investors holding stake in RIL increased from 1,318 as of March to 1,395.

The Ambani family’s own stake increased from 48.87% to 49.14% after the RIL rights issue.