Should You Buy Reliance Rights Issue and Shares? Look At This Analysis

Finance

Have you heard of Reliance Rights Issue and Shares wherein they are offering a discount of 14% to the current market price?

Reliance Right Issue will open on 20 May 2020 and will be available for subscription till 3 Jun 2020.

Many people believe that this 14% discount is giving them a direct opportunity to earn a 14% profit in very less time. Seriously, can you enjoy a 14% profit in just a few months and that’s why you are rushing to the buy the shares of RIL? It seems it will be even difficult to make the 1% profit out of this deal. How? Read below to understand why it is assumed here. 

 

The Decision of Reliance Rights Issue in Board Meeting

On 30th April Reliance Industries Limited had a board meeting, where they concluded the following:

  1. Right Shares are said to be issued at Rs. 1257 (Rs. 10 Face Value). The closing price of shares of RIL on 30 Apr was Rs. 1466. Comparing the on date share price with the price of the issue which is 1257, it is almost 14%.
  2. The ratio of 1:15, 1 share of every 15 shares held in reliance. Only those are entitled to this right issue who hold shares on the record date. If you hold 15 shares of reliance industries, you are going to get 1 share as rights share, multiplied over the holding of every 15 shares. 
  3. Terms of payment of issue price 25% on application and balance in one or more calls as may be decided by the board/committee of the board from time to time. For example, assuming the issue price to be Rs. 1000, 25% you have to pay on application. That means, Rs. 250 on application and balance 750 you will have to pay when RIL calls for that amount.
  4. Rs. 6.5 per share dividend.

Are You Really Entitled to Reliance Rights Issue and Shares?

As per the terms you should be holding shares of RIL on the record date to purchase the rights issue or become eligible to opt for the scheme. However, RIL is yet to declare the record date.

A question is buzzing in the mind of investors, what if anyone has only 10 shares, not 15. Then what? Will he be eligible to get a 3/4th share of RIL in that case? The answer is, No my Boy, you can’t purchase any of the shares. Simple matrix says:Reliance Right Issues and Shares

  • For 10 RIL Shares —- You get 0 share
  • For 15 RIL Shares —- You get 1 share
  • If you have 20 RIL Shares —- You get 1 share
  • For 25 RIL Shares —- You get 1 share
  • You have 30 RIL Shares —- You get 2 shares
  • You have 40 RIL Shares —- You get 2 shares, and so on…

Have a look at the below table and simply the observations. Here we calculate the total cost of 16 shares and potential profit with the deal.

Also Read: Can’t Retain Your Hard Earned Money? Follow these Steps

For New Investors in Reliance Rights Issue

Assume that you have 0 shares in RIL today. AS per the table, the average cost of the share by dividing the total cost for the 15 shares by the number of shares (23247/16) is Rs. 1453. Comparing the figures with the current market price of the shares i.e. 1466 as on 30 Apr, the potential profit is only 0.9%. It’s clear this is not an opportunity to earn 14% profit if you do not have even a single share of RIL as on date.  

Reliance Shares

For Existing Investors Invested Post-FB Deal in Reliance

Assume that you have purchased 10 shares of RIL after Facebook Deal. At that time, the share price was 1363. As per the table, for a total 16 shares held, you would get a potential profit of only 5.58%

For Existing Investors Invested before FB Deal in Reliance

Assuming that you have bought RIL shares before FB deal, when the share price was 1237, as per the table, you are gonna make 11.92% profit.

Conclusion

So, if you do not have any share in Reliance Industries Limited till date or if you have purchased the share post-FB deal, this investment will not be going to work for you. Ya, it may give approximately 12% profit to the investor holding the RIL shares before FB deal. Are you going to buy this right issue?   

For detailed info, you may watch this video: https://www.youtube.com/watch?v=P0X6rI6XEHI

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