You have to look at the Letter of Offer. I could not find one for Heritage Foods - don’t think they have filed even a Draft LOF with SEBI. Let me know if they have. If they do, search for ‘Basis of allotment’ and you will find the answer.
I do not think unsubscribed rights can be appropriated by the Promoters at their own discretion if there are other applicants as well. I am no expert, but experience suggests it will certainly fall afoul of SEBI’s regulations.
I checked the LOF for two recent rights issue - Suzlon and Sundaram Finance Holdings Ltd. and how they will handle allotments to folks who have subscribed to more than what they were entitled to.
Here’s what each one says (from their respective LOFs):
Very unlikely that you can have a rights issue manager saying that it will allocate it preferentially to the Promoters.
I haven’t gone through the all the posts, just the ones that ask how additional subscriptions will be handled; and will the Promoter corner all unsubscribed portion. I think the Promoter, in order to give confidence may say that they will apply so that any unsubscribed portion will also get subscribed by them.
In Sundaram Finance holdings rights, I got excess allotment where i held original REs. In another account, i tried with purchased REs where did not get in excess.
I applied for excess rights.
Ex: for my 10 RE, Lets assume i was eligible for 10. Applied 14. Got 12. 20% excess allotment given beyond basic RE eligibility. If you dont apply, then you have not paid for it. So these unclaimed ones will quietly goes to Promoter. In Heritage case, Promoter can easily increase it this way provided, there is less participation from non promoters.
Does anyone know when the company will proceed with the rights issue
Hard to guess. It would be great if experienced folks give us an idea about this. I think there is still a small possibility that the company does not go through the planned rights issue.
what the next steps in the process will be
Lead manager was announced. And today Registrar is announced. The one thing that matters for investors is the record date, as that is when the stock starts adjusting.
Hi, let’s say there are 100 shares at 350 and 100 rights share at 5. Promoter holding is 50 perc.
Now,
Ex rights price would be 355/2 = 177.5
Let’s say promoter applies for 2x shares. Among public 10 perc applies for 5x, 20 perc 1x and 20 perc don’t apply.
So now 80 shares are directly alloted. For the remaining 20, 60 perc shareholders are remaining. They each get the remaining rights issue, so promoter gets (50*20)/60, 16.7 shares.
Promoter shareholding increases to (50+50+16.7)/2!!
Which is 58.3!!!
Promoter and 10 perc shareholders win.
20 perc shareholders don’t have any effect.
20 perc shareholders lose big time!!!
What the promoter group is doing here is extremely unethical and sebi should never allow this.
And since they are doing something so unethical, the big investors will sell this share (they are more likely to apply for rights share/excess share).
The above numbers i have quoted for public are somewhat reflective of a normal rights issue. (And promoter can’t increase his shareholding at throwaway prices) Here though, i believe many more people will apply for excess shares, so maybe the promoter plans actually falls out. But again promoter doesn’t have much to lose except his reputation that is.
Was there a stock split in Heritage?
In Zerodha, my buy price shows 350, cmp: 187 and 40-50% loss.
I guess there must have been a stock split, however I can’t find this online and Zerodha is reflecting incorrectly
There has been a rights issue in the proportion of 1:1 & it will get allotted to you in the same way, please find the communication for your perusal. Rights issue update.pdf (328.1 KB)
Trying to understand an issue here
Day before record date stock price fell by more than 1% but it was supposed to rise as people buy for rights entitlement
On record date price rose by about 4% but it was supposed to fall as people sell on record date.
After the adjustment for the rights issue (about -49% down), the price initially fell further. After that, why it went higher is up to anybody’s guess. I wonder if bulls incorrectly felt that they have a bargain, unaware of the rights issue, or something else entirely (like introduction of new products).
So does that mean, you are at loss if you don’t subscribe to rights issue?
Let’s say I have 1000shares before rights(when total outstanding shares were 4.5cr)
If I don’t subscribe, I will still have 1000shares at half the price. Only this time total outstanding shares are 9cr. (Assuming the rights issue is fully subscribed)
How do we subscribe to rights issue? Is there any option on Zerodha, Upstox app
Yes, absolute loss if you don’t subscribe (or sell off rights entitlements REs)! This is true for all rights issue. This issue is particularly devastating for the shareholders who are unaware of the rights issue complexity.
You have to wait for Rights Entitlements (with suffix “-RE”) to appear on your holdings. They appear after the rights issue opens (in this case, Jan 30, 2023). They will disappear after rights issue close (here, Feb 13, 2023). In the meantime, you have two options to avoid loss:
You can sell off the REs. REs can be traded just like the original shares. To avoid loss, you can calculate the fair price of the RE as Original Share market price - Rights issue price (in this case, as per last closing price, ₹186.85 - ₹5 = ₹181.85). But typically, REs are sold at a discount. Whoever buys REs can apply for the rights issue. You have to sell off before the rights issue close date.
Or you can apply for the rights issue. Easiest way to subscribe to the rights issue is through your bank ASBA. After REs appear on your holdings, you may apply. Currently, there is no way to apply for rights issue through your brokerage account.
