Reliance's mega issue to test Sebi's rights entitlement platform

Prices rose 40 percent on the first day of the first issue so far after the trading platform was introduced

The trading rights entitlement platform, introduced by the Securities and Exchange Board of India (SEBI) earlier this year, will be tested in the mega rights issue of Reliance Industries (RIL). The platform will allow qualified shareholders to give up their shares in exchange for a price. In RIL's case, industry experts say shareholders can consider a maximum of 15 per cent of the value of qualified shares.

It is noteworthy for the shares of Reliance Industries that the price of right entitlement rose by Rs 151 and 40 per cent to Rs. The shareholders who did not want to apply till now had to go to their right entitlement (RE) or transfer it for free. Trading in the RE will open on May 20 with the rights issue and close on May 29. 

"The right entitlement process is new to all market participants and will be tested on a large scale," said Mohit Mehra, a business analyst at Zerodha.

However participants will not be allowed intra-day trading. Rs. RIL's rights issue at Rs 53,125 crore will be the rights issue to raise India's largest equity capital. RIL shareholders will be able to apply for one share in exchange for every 15 shares in the rights issue on May 14.

The shareholders' income will depend on the difference between the price of RIL's shares in the secondary market and the price of the rights issue, experts said. Shares of RIL are currently trading at Rs 1436.65 with a right issue price of Rs 1257 at a premium of 14.29 per cent. The value of RE in a fully paid rights issue will be the difference between the current market price and the price of the rights, the Kotak Investment Banking note said. At this level, RE's customers and sellers will be on break even. However, RIL issues part-paid shares and RE pricing dynamics may change.