Big-time success: Market experts hail rights entitlement platform

Sebi introduced the concept of trading in rights entitlement in January
The trading platform for rights entitlement (RE) has been hailed as successful by market experts, who say the avenue could give a fillip to rights issuances in the domestic markets.

Reliance Industries’ (RIL’s) mega rights issue was the first time the platform was tested. The trading window for the RIL RE ended on Friday.

The closing price stood at Rs 223. This is the price paid by investors to become eligible to apply for one share in the ri­ghts issue. Market players said the seven-day trading window saw huge volumes and enabled se­v­eral thousand shareholders to sell their entitlement at an at­t­ractive price.  In the seven trading sessions, 114 million RIL REs—about 27 per cent of rights issue—were traded, with total trading volume at over Rs 2,200 crore.  

 “This is a big-time success. Earlier, investors used to go to the grey market to buy entitlement. This has formalised the process. It will encourage more companies to go for a rights issue for additional funding,” said Deven Choksey, strategist at KRChoksey Investment Managers.

Sebi introduced the concept of trading in rights entitlement in January. Under the new system, the dematerialised accounts of eligible sh­areholders gets credi­t­ed with a new international se­curities identification num­b­er or ISIN, which will act as a separate security and can be traded on the exchange platform. Entities opt for the qualified institutional placement route for its quick turnaround time.

Choksey said the cost of raising funds through a rights issue is less than most other means. The cost benefit, coupled with regulatory changes, will prompt more firms to look at rights issuances, he said. Experts said it remains to be seen if the RE trading platform is as successful in case of small or mid-sized entities.

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