Gyscoal Alloys Ltd – Rights issue
The company aims to issue 174,103,116 Fully paid-up Equity Shares of Rs. 2.75 each at Rs.1 per share aggregating to ₹478,783,569.00. The entitlement ratio is 110 entitlements for every 100 shares held. The record date was on 23/12/2022 and the closing date on market renunciation and issue closing date will be on 9/1/23 and 12/1/23 respectively. The total shares outstanding are 158,275,560 meaning the rights issue will increase the share base by 110%.
Shareholders get to participate even more than their proportionate right, in the rights issue when the applications received are less than the issue and hence could get allotted more shares than the rights entitlements in hand thereby bringing down the cost per share allotted.
But I don’t know if one has to own the shares before the record date to get this privilege or if buying the entitlements would suffice.
The share price dropped from a high of ₹4.2 on the record date to a low of ₹3 but has recovered to ₹3.3 as of the date of writing this. The entitlements are trading between ₹.15 and ₹.2.
Example:
Cost of entitlements – ₹.15
No. of entitlements bought – 200
Extra application and allotment – 1.5X
Shares price after allotment – ₹3.1
The total cost of this bet = ₹855 (2002.9 + 1002.75)
Realisation after allotment = ₹930 (300*3.1)
Profit % w/o transaction cost = 8.77% in 1-2 months
Of course, this is a tailor-made scenario. Any of those or all of those assumptions could turn out to be false thereby materially changing the outcome. I am interested in discovering the ways in which rights offers could be exploited to one’s benefit. As this is an experiment, I am simply making bets on paper. Real bets could be really risky as I am still experimenting. Do your due diligence.
Disclosure: paper trading.
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