A buyer should pay Rs 202-245 for Reliance rights entitlement renunciation: Report

In cases of rights entitlement renunciation in the upcoming issue of Reliance Industries Limited (RIL), a buyer should pay the seller a theoretical fair value range between Rs 202 to Rs 245 for a fully paid rights entitlement, according to an analysis by Kotak Investment Bank.

Rights entitlement (RE) renunciation gives the buyer the rights to buy the shares at the Rights Price (equivalent to a strike price) as against TERP/CMP (Underlying Price) and is dilutive in nature. Additionally, all the future upside/downside of the stock is left with the Rights holder.

Kotak has simulated the fair value of the renunciation through pricing of this warrant. Warrant pricing is based on a slightly modified call option pricing calculator factoring in the dilutive nature.