Rights Issue - Hindalco.. how to apply?

s77 · #1 17th November 2005, 09:44 AM

Hi,

Hindalco is coming up with rights issue. I have 50 shares of Hindalco.. so I am eligible, but I am not sure what's the mechanism to apply for rights issue?

Can one apply directly on broker website (e.g. icicidirect) just like an IPO..

s77

smatrix · #2 17th November 2005, 03:05 PM

Yes me too is having the same problem,
Can anyone help ??

SSJAIN · #3 17th November 2005, 11:08 PM

Quote:

Originally Posted by s77

Hi,

Hindalco is coming up with rights issue. I have 50 shares of Hindalco.. so I am eligible, but I am not sure what's the mechanism to apply for rights issue?

Can one apply directly on broker website (e.g. icicidirect) just like an IPO..

s77

Hindalco has announced the Right Issue in ratio 1:4. Offer Price is Rs.96. You eligible for this if you the shares in your account on record date ie. on 28th November 2005.

You will be sent a letter for rights issue. You will have the option to subscribe to additional 12 shares(if you have 50) of the company at the offer price. Now, if you exercise the option, he would have to pay an additional Rs 1152( Rs 96 X 12 shares) in order to acquire the shares.

Let me quote few basics on Rights Issue

A rights issue is basically when a company offers existing shareholders a right to purchase additional shares of the company at a given price, which is at a discount to the prevailing market price of the stock, to make the offer enticing for the shareholder and to ensure that the rights offer is fully subscribed to.

It must be noted that in case of a rights issue, a shareholder has the option of applying for additional shares also i.e. over and above what he is entitled to. Thus, assuming that some of the shareholders do not exercise their right, the shareholders who have applied for additional shares are allotted the same.

Since, in the case of a rights issue, additional equity is issued, the issuing company's equity base rises to the extent of the issue. Thus, considering that the number of equity shares of the company has increased, there is a proportionate fall in the stock price of the company reflecting the new adjusted earnings per share (EPS).

Here, unlike a stock split, the face value of the stock remains unaltered. Further, the market capitalisation of the stock also remains unchanged as the stock price adjusts (as per the valuation accorded to the stock) to the new EPS.

ivanboesky · #4 17th November 2005, 11:59 PM

Hi ssjain,
That was a good explanation of what a rights issue is, but there was one key error, right in the beginning. Its a 1:4 rights issue, meaning that you can subscribe for 1 share for every 4 that you already hold. ie. if you already own 100 shares of Hindalco, you can subscribe for upto 25 more. You have stated the reverse. ie. what it would be for a 4:1 rights issue.

s77 · #5 18th November 2005, 10:56 AM

HI ssjain, Thanks for the explaination.

So if one don't subscribe to rights issue, one is effectively losing money as share prices will be diluted because of extra shares issues..? Am i right on that..

shorttermer · #6 18th November 2005, 01:00 PM

hi s77,

yes i think so. assuming the price is 130 at time of issue and you have 10 shares. now you dont suscribe to the rights issue... you end up with 10 shares at say 102 or thereabouts. so if you are not interested in the rights issue, it would make sense to sell off your stock right away before the issue comes about, or you could lose a fair bit of value on your shares.

shorttermer

lawrieking · #7 18th November 2005, 01:38 PM

Will the Rights Issue be publised in ICICI like any other IPO. I bought 200 on the dip and dont wanna miss the bus.Kindly advise as i am a newbie on ICICIdirect
thanks in advance
Lawrie

SSJAIN · #8 18th November 2005, 03:53 PM

Hi S77

You are exactly right, However good the company is, the market price of the share comes down. So if u are not opting for rights, better sell it.

How ever the original price may come in time, but u can always by them later in still cheaper rates. Book profit now, if you are not willing for rights.

ssnkumar · #9 22nd November 2005, 04:10 PM

Quote:

Originally Posted by SSJAIN

Hindalco has announced the Right Issue in ratio 1:4. Offer Price is Rs.96. You eligible for this if you the shares in your account on record date ie. on 28th November 2005.

You will be sent a letter for rights issue. You will have the option to subscribe to additional 12 shares(if you have 50) of the company at the offer price. Now, if you exercise the option, he would have to pay an additional Rs 1152( Rs 96 X 12 shares) in order to acquire the shares.

Let me quote few basics on Rights Issue

A rights issue is basically when a company offers existing shareholders a right to purchase additional shares of the company at a given price, which is at a discount to the prevailing market price of the stock, to make the offer enticing for the shareholder and to ensure that the rights offer is fully subscribed to.

It must be noted that in case of a rights issue, a shareholder has the option of applying for additional shares also i.e. over and above what he is entitled to. Thus, assuming that some of the shareholders do not exercise their right, the shareholders who have applied for additional shares are allotted the same.

Since, in the case of a rights issue, additional equity is issued, the issuing company's equity base rises to the extent of the issue. Thus, considering that the number of equity shares of the company has increased, there is a proportionate fall in the stock price of the company reflecting the new adjusted earnings per share (EPS).

Here, unlike a stock split, the face value of the stock remains unaltered. Further, the market capitalisation of the stock also remains unchanged as the stock price adjusts (as per the valuation accorded to the stock) to the new EPS.

Any idea, how to subscribe for this in ICICIDirect?
Will I get any mail regarding this or will it come under IPO section?

Regards,
Narendra

s77 · #10 24th November 2005, 11:12 AM

Hi Narendra, I am still not clear on that. I guess we can't subscribe on ICICIdirect.. we will get paper mail from the company.

On another note, I found this in Hindalco press release:

"As per the instrument approved by the Board, 25 per cent of the issue price shall be payable as application money, another 25 per cent shall be payable between nine and 12
months from the date of allotment and the balance 50 per cent shall be payable between 18 and 24 months after the date of allotment."
source: http://www.indal.com/media/press_rel...spirations.htm

Can somebody clearify this? what if we pay only 25 percent now and want to sell the shares say within a month...

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