Shares of telecom operator, Bharti Airtel, opened lower on Monday as the stock traded ex-rights issue. However, the stock managed to recoup its initial losses and traded above the flatline.
Shares of telecom operator Bharti Airtel opened lower on Monday as the stock traded ex-rights issue. However, the stock managed to recoup its initial losses and traded above the flatline.
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At 10:00 am, the stock was trading 0.3 percent higher at Rs 728.20 on the BSE.
Bharti Airtel will issue 392.29 billion shares at a price of Rs 535 per share, including a premium of Rs 230.
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The Rs 21,000-crore rights issue will open on October 5 and close on October 21. September 28 is set as the record date for the purpose of determining the shareholders who shall be eligible to receive the rights entitlement in the issue.
The rights entitlement ratio entails one equity share for every 14 shares held by eligible shareholders as on the record date.
Passive funds that hold Bharti Airtel shares in their portfolio are likely to sell the rights entitlement to avoid going overweight on the stock, an analyst at a brokerage firm said.
That is because these funds are benchmarked to the indices and they will have to realign their portfolios to maintain the weightage of the stock in accordance with the stock's weight in the index they are benchmarked to, he added.
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Exchange-traded Fund (ETF) index providers will not incorporate the partly paid-up shares of Bharti Airtel that will be created due to rights in the weight calculation in indices, said Abhilash Pagaria, Assistant Vice President – Research, Edelweiss Alternative Research, in a note.
Ideally, the global passive ETF managers will look to sell the rights in the rights renunciation window, Pagaria added.
Rights renunciation form trade at intrinsic value as the forms are trading at a premium or discount will be a function of demand and supply. On a moderately conservative basis, Pagaria sees Bharti Airtel Rights Entitlement to ideally trade Rs 40-60 premium to intrinsic value.
The stock has generated 125 percent returns during the past three years as compared to the benchmark Nifty50 that has surged 63 percent during the same period.