Heritage foods have come up with a rights issue at Rs.5 only. Ratio 1:1
Current market price: Rs340
Heritage Rights Issue.pdf (268.6 KB)
Unable to understand why management has opted for right issue with a price of Rs 5/share. They have never discussed anything about their expansion plans. Also, their quarterly operating profit itself is more than the size of right issue.
This is not about money, it is about increasing there shareholding. It can be seen from the pdf , that they will subscribe to all rights issue which are not subscribed by anyone.
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How can one apply for excess rights. Are excess subscription pro rated allocated between minority and promoter?
I think excess rights can be bought by buying Rights entitlement (RE) from the exchange ,when they will be traded for a limited time.
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This time - detailed presentation (I think they changed IR also).
Heritage management being embarrassed on the call on the rationale for the rights issue; reflects very poorly. Mgmt. saying we did this to help fund capex, which people rightly pointed out to good cash balances on books and strong FCF generation last few quarters. Sambasiva Rao gets frustrated and finally tells the IIFL analyst that you are not the managing director to tell us what to do.
These guys do not realize such things damage multiples for good no matter what numbers you deliver. This is not the first time he has lashed out on the call. Clearly, they had some convoluted logic for the rights issue - which is fine but they should be forthcoming and explain that on the call rather than give illogical reasons.
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Thatâs really bad if true.
The true intention, which isnât so hard to work out, is that the Promoters probably want to inch up their Holdings.
Even if the CEO didnât want to discuss about that, lashing out at a valid question reflects very poorly on him.
I sincerely hope the new CEO does better.
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How promoters can increase the % SH?
Everyone would apply extra?
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Well, theyâve specifically mentioned that theyâll subscribe to all of the unsubscribed portion. So they expect many wonât.
At least thatâs what it looks like when theyâve made a Rights Issue for an insignificant amount that they can generate internally within a single quarter.
True. Normally, Any rights documents shall have similar wordings whenever there is promoter participation.
Recently, Sandhur also came similar low priced. its indirectly rewarding shareholders ( including promoters). Now, RE units are tradeable , hence anyone can buy & convert to shares.
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Concall Transcript is out and guess what? Theyâve used âCompany Speakerâ in place of the Speakersâ name. All earlier transcripts had the Speakersâ name written against their answers.
I suppose this jugglery is to hide the name of the person behind the unnecessary outburst, which is public by now anyway.
The Management should treat Analysts and Shareholders alike with respect and apologize upfront when they donât. Mistakes happen; people lose cool once in a while and thatâs completely fine. But to try and mask it â as a shareholder, itâs just disappointing they did that.
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Correct me if I am wrong, but retail shareholders donât have any way of buying the unsubscribed portion of the rights or is it possible? The rights which will eventually trade on the exchange will be ones which have already been subscribed for right? The point I am trying to understand âIs there anyway non-promoters can take advantage of non-subscribed portion of the rights issue?â
Thanks a lot!
applying for extra shares is certainly possible.
however, the extra shares allotted will be proportional to the initial shareholding of existing shareholder.
by this criteria, promoters stand to benefit more than anyone else since they are the majority shareholder(s).
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I am sorry for appearing to be a noob here, but my understanding is as follows (which is most certainly not fully accurate and please guide me whenever I am erroneous)
1- Warrants are initially allotted to shareholders as per their respective shareholding in the company. For eg: If I own 10 shares, I get 10 rights to subscribe to additionally shares @Rs5 (instead of current market price of 330rs). Assume total outstanding shares as 100 shares and promoters own 50 shares
2- I approach the registrar and I pay Rs 50 (âš5*10 shares) to subscribe to 10 additional shares
3- Now suppose the other 40 shareholders are not active and are not aware of this rights issue. They donât subscribe to the rights and it goes unexercised. Hence 40 shares are unexercised
4- As per the disclosure, promoters will exercise these 40 shares completely at Rs5 per share instead of Rs 330 (current market price). While I am not diluted, the other inactive shareholders are and promoters increase their shareholding at throwaway price.
5- Is there anyway I can get access to these 40 rights which are unexercised or will the promoters gobble up everything? I understand that rights are issued as per shares owned, but what do I need to do to gobble up these rights and ensure promoters donât get everything (I am sorry for wording it in that way but this is essentially what the promoters are doing).
6- Basically will these unexercised 40 rights be exercised completely by promoters (who own 50% of company) or will these 40 rights be again offered to shareholders who have exercised their rights and distributed in proportion to their shareholding (ensuring that both the promoters and the active shareholders enjoy the discounted price of the warrants).
Thanks a lot and pardon my ignorance again 
Refer to this.
Thanks Dinesh. From what I understood, every shareholder as of record date gets a rights entitlement credited to his demat account. Now the shareholder can chose to subscribe to those entitlements by paying cash or let it expire. He/ she can also buy additional entitlements from the secondary market and then subscribe to it.
But my question is mainly what happens to those who let their rights entitlements expire? Those unsubscribed rights are entirely subscribed by promoters or is there anyway a retail shareholder can subscribe to those unsubscribed rights entitlements?
The reason I am asking this is in all likelihood, the ones who sell their rights entitlement on the exchange will do so at a premium to the subscription price given that there is a huge difference between the actual share price and the rights subscribtion price and there may not be a arbitrage opportunity to buy the rights at a premium.
Thanks a lot once again to the community for your helping hand
~18% of the shares are held by DIIs and large investors, wonder how are they not objecting to this? Daylight robbery by promoters and not a single objection or voice of dissent on the concall.
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Yes, thatâs exactly what they said in the initial Rights Issue notification. Theyâll subscribe to the entire unsubscribed portion.
~18% of the shares are held by DIIs and large investors, wonder how are they not objecting to this? Daylight robbery by promoters and not a single objection or voice of dissent on the concall.
Apparently when youâre not the CEO or on the Board, youâre not entitled to asking questions or having an opinion.
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