What Is Rights Issue?
In simple term a company goes for rights issue when they need money for expansion, acquiring assets or want to repay the debt of the company.
The plan behind a rights issue is to raise fresh capital. As the company is already listed on stock exchange, instead of going public through IPO, the company approaches its existing shareholders.
In other words you can call it a second IPO, for a selected group of people (i.e existing shareholders).
When we say shareholder it means who owns shares of the company already on a given date, known as “record date“, only those will have the right to buy these shares.
Record date means the date at which an investor of the company should own shares of the company to be eligible to participate in the rights issue. Typically, rights issue is offered in proportion to number of shares an existing shareholder is holding.
For example, 1:5 rights issue means for every 5 shares a shareholder owns, he can subscribe to 1 additional share. However, the new shares under the rights issue will be issued at a lower price than what prevails in the markets.
The rights issue could be an indication of any futuristic new development in the company. The shareholder should subscribe only if he or she is completely assured about the future of the company.
Another point to note, the market price is below the subscription price/right issue price it is obviously cheaper to buy it from the open market.
About Reliance Industries Rights Issue to open on May 20
Reliance Industries (RIL) has come up with the biggest rights issue amounting to Rs 53,125 crore in nearly 30 decades to its existing shareholders. The main purpose of the issue is to cut the debt and to be a zero debt company by March 2021.
Details of Reliance Rights Issue
- The issue price of RIL rights issue is Rs 1,257 per share i.e. ~14% discount to the closing price on April 30, 2020
- The rights issue will open for subscription on May 20, 2020 and the closing date is June 3, 2020
- The table below will summarize the rights ratio and the entitlement of a shareholder.
|Outstanding shares of Reliance Industries
|633.94 cr shares
|Ratio of Rights
|Number of rights shares issued
|42.26 cr shares
|Price of the Rights
|Rs.1,257 per share
|Size of the Rights issue
RE Trading Period
Credit of right shares
|Rs. 53,125 cr
May 20th to June 3rd
May 20th to May 29th
June 11, 2020
June 12, 2020
How can I apply for the Reliance rights issue?
The Registrar and Transfer Agent (RTA) of Reliance Industries Limited will check the eligible shareholders who hold the shares of the company as on the record date – 14 May 2020 and send the rights application form electronically to the email ID mapped in their demat account.
The issue will be open between May 20th and June 3rd. You can apply for one share of Reliance at the issue price of Rs. 1257 for every 15 shares held by you
The RTA will also credit the rights entitlement (RE) receivable by the shareholders to their respective demat accounts. The rights entitlement ratio is 1 (one) equity share for every 15 (fifteen) equity shares held as on the record date.
In case you do not want to apply for the rights, you can sell these REs after they are credited to your demat account like you sell shares from your holdings.
Due to the ongoing pandemic SEBI has made certain changes for applying the rights issue.
Once the issue opens on May 20th, you will be able to visit the RTA’s website and directly pay for your application from your bank account using the RTA’s payment gateway. The RTA will collect the following details on their website:
Visit https://rights.kfintech.com. Register your email id and mobile number
- DP ID & Client ID
- Bank account details
Other Choices You have
Let the rights lapse – In this case, you refuse to apply for the rights shares and take no action. Remember, if you are an existing shareholder and choose not to exercise your rights, you may see a dilution in your shareholding since post the rights issue, there will be dilution in earning per share.
Sell your rights to an interested buyer – You can also sell your rights entitlement (RE) for an acceptable price. In case the CMP of Reliance is Rs. 1400 then the theoretical price of the RE will be Rs. 143 (i.e. 1400-1257). The RE can trade at a premium or discount to this theoretical price.
- You may renounce your Rights Entitlements, credited to your respective demat accounts by trading / selling them on the secondary market platform of the Stock Exchanges through a registered stock broker.
- You will have to do so through their registered stock brokers by quoting the ISIN INE002A20018 and indicating the details of the Rights Entitlements you intend to sell. You can place order only to the extent of Rights Entitlements available in your demat account.
- The Rights Entitlements are tradable in dematerialized form only.
- The market lot for trading of Rights Entitlements is 1 (one) Rights Entitlements and shall take place only during the Renunciation Period i.e., from Wednesday, May 20, 2020 to Friday, May 29, 2020 (both days inclusive).
- The On Market Renunciation shall take place electronically on the secondary market platform of BSE and NSE under automatic order matching mechanism and on ‘T+2 rolling settlement basis’.
- The transactions will be settled on a trade-for-trade basis.
- STT at 0.05% of the value of RE is levied on the seller of the RE.
About Registrar R-Wap
It is an online platform where application for rights issue of Reliance Industries Ltd can be made through Non-ASBA route and payment can be made using net banking or UPI from applicant’s own bank account
Who can apply?
Only Residents holding & making payment through own resident bank account can avail this facility
How should I know my entitlement?
In case you having holding in DEMAT account, please refer the REs credited to your account and in case of holding in physical folio, please refer the entitlement letter sent to you
Do I need a DEMAT account for applying through this app?
Following can apply through R-Wap
- Shareholders having holding in DEMAT account as on the record date
- Shareholders having holding in Physical folio as on the record date
- Renouncee’s having REs and also holding a valid demat account
How to make the payment?
There are two payment options – Net Banking and UPI
Can I apply more than my entitled shares?
Yes, you may apply for additional shares along with entitled shares
Can I make payment from any bank?
Yes, In case of an UPI.
In case you are using a Net Banking facility for making payment, then the option is available only for below mentioned 30 banks
|AU Small Finance Bank
|Bank of Baroda
|Bank of India
|City Union Bank
|Indian Overseas Bank
|Jammu And Kashmir Bank Limited
|Karur Vysya Bank Limited
|Lakshmi Vilas Bank Retail
|Oriental Bank of Commerce
|Shamrao Vithal Co-Operative Bank Ltd.
|South Indian Bank Ltd
|State Bank of India
|Tamilnad Mercantile Bank Ltd.
Can I use the bank details of my family / friends for making payment?
No. The bank details to be used for making payment through this platform must have your name as one of the joint holders along with the family / friends otherwise it will be treated as Third party payments and will be rejected as per SEBI circular dated May 06th 2020
Can i use a credit card for making payment?
No. Option to use credit card for making payment is not available on this platform
What is the maximum amount I can pay through this platform?
In case of NetBanking, there is no restriction on amount on R-Wap. However, maximum amount will be as per the limit set by applicants’ respective banks. In case of UPI, the payment can be made only upto Rs. 2 lakhs
My payment has failed, whom do I approach?
Please check if you have provided the correct details. You can write to us at email@example.com or call us at 1800 425 8998 / 1800 345 4001
Payment confirmation is not received however amount debited, whom do I approach?
Please write to us at firstname.lastname@example.org or call us at 1800 425 8998 / 1800 345 4001 and we shall provide the status
In case of wrong information being submitted, do I have the option to revoke or rectify?
No. Once the application is submitted, it is final. However, application can be withdrawn by sending an email with withdrawal request to email@example.com during the issue period. Further, no investor may withdraw his/ her/ its application post the issue closing date.
You can sell your rights through the stock exchange like you sell your shares. This is possible with brokers to whom you’ve given an online DIS consent or a POA to allow the REs to be transferred without submitting a physical DIS.
In order to sell the REs to a particular individual, you will have to submit the delivery instruction slip to the depository participant when you don’t have online access to your demat account. In the present situation, this might not be possible.
How do I apply for a rights issue through ASBA?
The Rights Issue shares will be available at a discount to the market price, almost like an open privilege to all the shareholders of the stock.
The process of applying for a rights issue is through ASBA (Applications Supported by Blocked Amount). If your bank supports it, you can apply online just like an IPO.
If not then you would have received a courier of the Composite Application Form (CAF) from RTA (Registrar and Transfer Agent) of the company. You will have to fill the form and submit it at a Self Certified Syndicate Banks (SCSBs) branch.
The details of the Rights issue will be mentioned in the form which primarily includes the Rights Issue ratio and the Book closure date.
The details to be filled are:
- *Cheque/DD details (non ASBA)
- Select NSDL – if your DP starts with IN. Select CDSL if the DP ID is completely numeric.
- Your PAN number. If you have a joint account then fill in the PAN of the second holder.
- Fill your DP details. Your DP ID and the Beneficiary number
- Your signature. Signatures of both account holders if it is joint account.
Once done you can submit at any branch of a Self Certified Syndicate Banks (SCSBs). The list of banks can be found on the application from itself.
Once the issue allotment is completed, the stocks will be credited to your DEMAT account within 15 to 20 days from the Book Closure date.
What is “ASBA”?
ASBA means “Application Supported by Blocked Amount”. ASBA is an application containing an authorization to block the application money in the bank account, for subscribing to an issue.
If an investor is applying through ASBA, his application money shall be debited from the bank account only if his/her application is selected for allotment after the basis of allotment is finalized, or the issue is withdrawn/failed.
Application Supported by Blocked Amount (ASBA) is an application made by an investor, containing an authorization to Self-Certified Syndicate Bank (SCSB) to block funds available in applicant’s Savings Bank Account or Current Account (other than OD).
For subscribing to an Issue, to the extent of application money, till finalisation of allotment in the issue or till withdrawal/ failure of issue, or till withdrawal/ rejection of application, as the case may be.
Under ASBA, funds blocked in the account, will continue to earn interest during the application processing period, if held in an interest-bearing account. Bank will mark a lien on the deposit account of the investor to the extent of the application money.
The hold on the account will be removed after finalization of the basis of allotment.
What is the application process to be followed if Investor is unable to make application using ASBA?
In accordance with SEBI circular SEBI/HO/CFD/DIL2/CIR/P/2020/78 dated May 6, 2020, a separate web based application platform, i.e., the R-WAP facility (accessible at https://rights.kfintech.com), has been instituted for making an Application in the Issue by resident Investors.
Further, R-WAP is only an additional option and not a replacement of the ASBA process.
On R-WAP, the resident Investors can access and fill the Application Form in electronic mode and make online payment using the internet banking or UPI facility from their own bank account thereat.
For details, see “Terms of the Issue – Procedure for Application through the R-WAP” on page 285
What is Self Certified Syndicate Bank (SCSB)?
Self-certified Syndicate Bank, the SCSB is a bank which is recognized by SEBI as a bank which is capable to provide ASBA services to customers.
SEBI website enlists the names of such banks and their branches and updates it regularly. You can always get the updated list os such SBSC banks and branches Here.
What makes you eligible to apply through ASBA?
According to the issues regulators, the SEBI has to specify the following regarding
ASBA-Public issues – All retail investors can apply through
ASBA-Rights issues –All shareholders as on the record date are allowed to apply through ASBA.
However, the applicant must hold shares in dematerialized form and must also apply for the issue in the dematerialized form