RIL's first rights issue in 3 decades likely to open on May 22

As per the payment terms, 25 per cent of the amount will be on application and the balance on more calls.

Market sources said there is a strong repositioning of RIL as consumer/technology company with Jio and retail platforms.

As new strategic investors participate in growth engines, the rights issue will reward existing shareholders by enabling them to participate in consumer/technology business value creation.

The rights issue ensures minority shareholders' participate in next wave of value creation.

The price of "Right" shares to maintain the earnings per share (EPS) is Rs 1,077. At 8 per cent discount on the market price of Rs 1,427, the rights issue will be at Rs 1,314 with a total size of Rs 55,533 crore.

If the discount is 10 per cent, the price will be Rs 1,284 at a total size of Rs 54,265 crore. If the discount is 12 per cent, the rights issue price will be Rs 1,257 with a total issue size of Rs 53,124 crore.

Market sources said that RIL is well-positioned to navigate the macro headwinds and diversified earning streams but with conservative gearing. It has a robust and resilient business model, as 35 per cent of EBITDA is coming from consumer businesses.

In addition, the investment cycle has been completed and it has stronger cost positions across products and reduced Capex intensity. Sources point out that new business models create disproportionate value and the golden decade of value creation lies ahead.

They point out that asset light technology companies have created more value over the last decade than the aggregate market capital of energy companies in the S&P.

They cite the examples of Amazon, Apple, Microsoft, and Google.

The strategic investments in digital services and organized retail platforms underpin RIL's participation in the next leg of value creation in India.

There has been a significant re-rating of the stock with the launch of Jio in September 2016, with growth in the consumer business visibility. Sources say the re-rating will continue with increasing share of consumer businesses in earnings.

Giving the rationale for the rights issue, market sources said the global pandemic is reshaping the way the world lives and works.

There is a visible acceleration in digital services, heightened need for robust supply chain-led new commerce model.

Market sources say this is a value accretive rights issue and the first rights issue by RIL in three decades. The rights issue will ensure all investors get to participate at the same level as promoters in upcoming opportunities.

The promoters will take up their entitlement and all of the unsubscribed portion. The promoter contribution demonstrates deep conviction in Reliance's future. Market sources said this is a rare opportunity for existing shareholders to participate in new issuances by Reliance.

The timing of the issue is right as the RIL stock is around 12 per cent lower than the 52-week high, reflecting market confidence in Reliance. On the trajectory of the stock price, on March 24 when the lockdown was announced, RIL stock was pegged at Rs 943. On April 20, when oil prices crashed and went negative for the first time ever, the stock was at Rs 1,243.8.

On April 22, when the Facebook-Jio deal was announced, the stock was at Rs 1,237.4 but on April 27, it had climbed up to Rs 1,429.8 on the day of the announcement of board meeting for rights issue.

On an average, Nifty 50 stocks are 35 per cent below their 52-week high. Only 5 stocks are within 10 per cent of their 52-week high. There has been a sharp recovery in the RIL stock as investors reassess growth prospects in the post-pandemic scenario.

Market sources said that the rights issue is accretive for RIL shareholders from FY21 with a potential for significant investor returns.