Bharti Airtel-Rights Entitlement jumps 40% on listing day; use, or sell to make money before it goes to zero

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October 05, 2021 3:24 PM

Bharti Airtel-Rights Entitlement (Bharti Airtel-RE) share price rallied 40 per cent on day one of listing.

Bharti Airtel, Bharti Airtel RE, rights issue, rights entitlementBharti Airtel’s mega Rs 21,000-crore rights issue will remain open for investors till 21 October 2021. Image: Reuters

Bharti Airtel-Rights Entitlement (Bharti Airtel-RE) share price rallied 40 per cent on day one of listing. On Tuesday, Bharti Airtel-RE shares were trading 39.97 per cent higher at Rs 204.50 on BSE. The value of the RE shares is more or less close to the spread between the company’s share price and the offer price of the rights issue. The actual traded price may differ depending upon the demand. In case of Bharti Airtel RE, a rights share has been offered at Rs 535 and the market price of Bharti Airtel (last close) is Rs 681.10. This means the value of RE is Rs 146.

Bharti Airtel’s mega Rs 21,000-crore rights issue will remain open for investors till 21 October 2021. At the time of application to the rights issue, investors have to pay Rs 133.75 per share (25 per cent of the rights issue offer price of Rs 535), while the remaining Rs 401.25 will be collected in two separate installments. The company has decided on a rights entitlement ratio of 1:14. Therefore, investors will be eligible for 1 rights entitlement for every 14 equity shares of Bharti Airtel. The shares issued to investors will then be converted to partly paid-up shares and listed on the BSE and NSE, separately.

Also read: What is Rights Entitlement of shares? How investors can benefit or lose money; all you need to know

Shareholders who don’t wish to subscribe to the rights issue can sell their REs till 14 October 2021. The company in a BSE notice said that the eligible equity shareholders must ensure that renunciation through off-market transfer is completed in such a manner that the rights entitlements are credited to the demat account of the renouncee(s) on or prior to the issue closing date. “REs for renunciation shall be settled on a T+2 rolling settlement basis. The trades shall be settled on a trade-for-trade basis. REs only gives the right to participate in the ongoing rights issue of the concerned company by making an application with requisite application money or renouncing the REs before the issue closes,” BSE said in a notice dated October 1, 2021.

3 ways in which people lose money in REs

It may be noted that people can lose money in rights entitlements in three ways, Ravi Singh, Vice President & Head of Research, Share India Securities, said to Financial Express Online. Firstly, when the eligible shareholder leaves the rights entitlement without applying for the rights issue; and secondly, when an investor buys the rights entitlements from the eligible shareholders during trading but does not apply for the rights issue before the deadline ends for application. And thirdly, when the spread reduces after buying the REs. For example, if a share price A is trading at Rs 200 and the company has gone for rights issue at Rs 180. The right entitlements trade at Rs 20 with a multiple of the minimum lot size. Now, if the share price falls to Rs 190 from Rs 200, then REs will trade at Rs 10, as compared to the previous price of Rs 20, implying a loss of Rs 10 on each entitlement.

Analysts say for investors who have a long term plan of holding Bharti Airtel, subscribing to the rights issue makes sense. However, in case investors do not want to subscribe, “then it is better to sell the RE as the current premium is on the higher side as per our understanding,” Yash Gupta, Equity Research Analyst, Angel One, told Financial Express Online. Gupta expects Bharti Airtel RE share price to fall. “We expect some selling pressure from passive mutual funds as they can’t hold partially paid-up shares,” he said.

REs introduced in May 2020 in Indian stock market

Rights Entitlements were introduced in Indian stock markets in May 2020 with RIL’s mega Rs 53,125 crore rights issue. Company issues RE to shareholders through rights issues, giving them the right to subscribe, or to sell it to other interested investors.

(The stock recommendations in this story are by the respective research analysts and brokerage firms. Financial Express Online does not bear any responsibility for their investment advice. Capital markets investments are subject to rules and regulations. Please consult your investment advisor before investing.)

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