BHARTI RIGHTS ISSUE
We are receiving a lot of queries on Bharti Rights and therefore thought of writing this quick blog to bring our subscribers up-to speed on what to expect.
First question to answer is, What is RIGHTS and why are they there to start with?
Rights Issue is basically a RIGHT (haq) of existing shareholders on freshly issued shares of the company. Each existing shareholder gets the right to buy certain number of shares based on pre defined ratio. Companies go via this route to raise money as it’s a lot more cost effective compared to FPO.
So, In case of Bharti, that ratio is 1:14. It simply means you are eligible for 1 share every 14 held by you as on the record date (which was 28th Sep)
These shares are issued at a discount to market price and therefore there is an arbitrage.
The Bharti rights issue is at ₹535 per share, while the current price is ₹701.
This Arb is on paper though, Bharti shares are suppose to fall to the same proportion to account for this dilution. In reality, it might or might not happen. Our readers would recall a peculiar case of ZEEL warrants where we were paid to receive interest bearing warrants.
Also, Bharti is in futures and therefore if somebody is applying for multiple quantities, he can hedge his/her risk via derivatives. But that is complex maneuvering outside the scope of this blog. Also, chances of getting extra allotment is speculative at best!!
As a shareholder, you should always apply for Rights. (Because stock price is expected to fall). In special situations arb world, people not applying for Rights are termed as brain dead and are part of excel calculations. More such people, better the returns.
Here is a detailed procedure on how to apply for your rights.