Energy-to-telecom major Reliance Industries Limited (RIL), the country’s largest company in terms of market capitalisation, is all set to go live with its mega rights issue on Wednesday. The rights issue valued at Rs 53,125 crore, will be open for subscription today and it will close on June 3.
This is the biggest ever rights issue announced by a company in India and the first time in almost three decades that RIL plans to raise funds from the shareholders, including promoters of the company.
The rights issue is part of RIL boss Mukesh Ambani’s plan to deleverage the company’s balance sheet and make it net debt-free by March 2021. (Photo: Reuters). The company is actively taking other measures to pare its debt as well. It has already raised over Rs 67,000 crore through strategic stake sale in Jio Platforms.
But the rights issue is a key milestone for the company in its effort to become a zero net debt company. Here are some key points you should know about the mega rights issue:
What is a rights issue?
When a company is planning to cut down on its debts and needs to raise money, they often announce rights issues. In case of a rights issue, a publicly listed company offers its existing shareholders the option — not an obligation — to buy new shares at a discount compared to the current trading price.
In a nutshell, it is an invitation to existing shareholders to purchase additional new shares of the company, which is looking to raise additional capital from its shareholders.
RIL rights issue
The company had informed its shareholders in an earlier letter that it plans to raise over Rs 53,000 crore through the fresh rights issue, a bulk of which will be used to clear the company’s debts.
It may be noted that the company will issue 42,26,26,894 equity shares as part of the mega rights issue. The company will offer existing shareholders one new share for 15 held at a discounted price of Rs 1,257.
All eligible shareholders as per record date of May 14 is entitled to subscribe to the fresh issue.
Promoters of the company have already said they will subscribe to almost half of the rights issue or Rs 26,000 crore.
Terms of payment
Shareholders will only have to pay 25 per cent of the total subscription amount and the balance will have to be paid by shareholders in two instalments in May 2021 and November 2021 respectively, according to a regulatory filing by the company.
Operation zero net debt
As mentioned earlier, the fresh rights issue is part of Ambani’s plan to make RIL debt free by March 21. The company’s net debt stands at Rs 1,61,035 crore, of which it has raised over Rs 67,000 crore through strategic stake sale in Jio Platforms.
A chunk of the additional capital raised from the rights issue will also go towards clearing debt. Many brokerage houses believe that the company will achieve its debt free target within the March 2021 deadline.
What’s in it for shareholders?
Analysts say the offer should be viewed as an opportunity by shareholders who could be part of a company’s future growth story as it ventures into various domains through technology integration.
Analysts are optimistic about the rights issue and say that many shareholders are likely to subscribe today.