Reliance Industries (NSE:RELIANCE) Rights Issue has finally concluded with the company having allotted 42.24 Cr Equity Shares at a discounted rate of 1257/sh to eligible shareholders giving them the option of part payment. The partly paid-up shares of the same are to list on the exchanges soon priced as (1257*25%)+(Market Price of Reliance - 1257) + Premium, which considering Reliance Industries' closing price today of 1538.80, translates to Partly Paid-up stock being priced at 596.05 +/- premium/discount. An Opportunity in Partly Paid-up Shares For existing investors: For investors, it may be more beneficial to convert their holdings in the stock to the partly paid-up counterpart purely as that protects you from any downside risk should the stock slip below 1257. The investor also has the option of reinvesting the capital freed up on conversion elsewhere since the next scheduled payment as attached: Say, an investor with a 100 shares could sell his shares at market price 1540/- (assuming) and buy a 100 partly paid-up shares at 597.25+ premium (assuming a 10% premium)=657/- with a total investment of (100*657=65700) and free capital of ((1540-657)*100=88,300). Assuming the same free capital is invested in an 8.5% interest bearing asset (fixed deposit) of which 36% would mature by April' 21 matched to pay the next installment in May' 2021 and 64% would mature by September' 21 matched to pay the final installment in November' 21.
Without losing his upside exposure while being hedged below 1257/-
Post the entire exercise the shareholder would have 100 Equity shares of Reliance Industries at 1257/- and cash in hand of 9403/- or adjusting cash to costing 100 shares at 1162.97/-
For Prospective Investors:
Interestingly, the partly paid-up shares can be used by any prospective Reliance Industries Shareholder treating them similar to a year-long Call Option with the Strike Price at 1257/-
#Disclaimer:- Equity investing risky please consult your adviser before making any decisions. Do not rely on any of the above calculations, before taking an investment decision. The above post should not be misunderstood as investment advice and is being posted strictly for educational purposes. May be invested in the stocks discussed.
