RIL’S rights offer looks attractive: Analysts

Even as the lockdown continues, majority of market experts advise that shareholders should participate in India’s largest rights issue by the country’s most valuable company, Reliance Industries (RIL). And that shareholders should not worry about liquidity and price discovery in the partly paid-up shares.

The oil-to-telecom major plans to raise ~53,125 crore through the rights issue, which opens on May 20 and closes on June 3, to further reduce its debt. RIL has finalised four deals selling minority stakes in Jio Platforms to foreign investors and raised ~67,195 crore in less than a month. Sunday’s ~6,598.38-crore investment by General Atlantic, a leading global growth equity firm, for 1.34 per cent stake, values Jio Platforms at an equity value of ~4.91 trillion and an enterprise value of ~5.16 trillion.

Analysts at CLSA recently said investments by techfocused funds like Vista and Silver Lake along with Facebook would reposition Jio (Platforms) as a tech major rather than just a telecom operator. The deals would help RIL’S debt reduction initiative that remained an important trigger for the stock.

Though its legacy businesses — refinery and petrochemical — are feeling the heat of demand pressure because of the lockdown and are in a downcycle, RIL’S diversified business model in which over half the equity value is derived from consumer-oriented businesses of telecom and retail is keeping analysts positive on the company’s prospects.

Amongst other reasons are the promoter’s high commitment in the rights issue, and also that only 25 per cent needs to be paid at the time of subscription. “The promoters subscribing to over half of the issue and any part unsubscribed portion too, instills confidence. While the partly paid-up shares may trade at slight discount, unlike a couple of others, they are likely to remain liquid,” said an analyst.more importantly, the prospects of its consumer businesses appear brighter than ever.

Analysts at Axis Securities say the discounted price of the rights issue provides an opportunity to participate in RIL’S high-growth consumer-oriented businesses.

The rights issue price of ~1,257 is 13.8 per cent lower than Friday’s close of ~1,458.90. The rights issue will help the business re-rate and allow additional value creation potential of ~100 per share as RIL will be in a stronger position as the Saudi Aramco deal can happen at a later date, they added.

Amongst other points in favour of the rights issue, analysts say, is that RIL is amongst the few companies that can withstand disruptions. “There are very few equity investment opportunities in current environment that offer some value unlocking triggers and investors need pay only 25 per cent at the time of subscription, which may influence them to consider subscribing to the rights issue,” said Deepak Jasani, head of retail research at HDFC Securities.

On liquidity of partly paid shares, an analyst at a domestic brokerage points out that RIL has large free float, and hence, trading in the partly paid shares should not be a concern.

A K Prabhakar, head of research at IDBI Capital, says the partly paid-up shares will trade at slight discount as there has to be an arbitrage opportunity to incentivise the buyers too. Nevertheless, the shares will remain liquid and should not be a problem.

There are other companies such as Tata Steel and Indiabulls Ventures, which continue to see their partly paid-up shares trade on the bourses.