Partly-paid shares outperform their fully-paid peers

Mumbai: Two listings last month of partly-paid shares — Tata Steel and Indiabulls Ventures — have given strong returns, outperforming their own fully paid scrips. But analysts now advise investors to buy the fully-paid stock since arbitrage is no longer available in both partly-paid shares.

“Implied value premium… in the partly-paid rights issue for Tata Steel is 2.7 per cent: For Indiabulls Venture, it is 10.6 per cent, indicating nonavailability of an arbitrage opportunity,” said Abhimanyu Sofat, VPresearch, IIFL.

Tata Steel’s partly-paid shares, which listed on March 19, at Rs 138 apiece, is currently trading at Rs 163, up 18 per cent while Tata Steel stock gained 6 per cent during this period. Similarly, Indiabulls Venture partly-paid shares gained 82 per cent since listing on March 21, and currently trade at Rs 133. Indiabulls Venture shares gained 13 per cent during this period.


Analysts said it does not make sense to buy Indiabulls Venture’s partly-paid of 0.5 shares at this price point since it has risen almost 115 per cent from its issue price of Rs 60 and almost 49.5 per cent from the closing price of March 22.

“Assuming if we add all the call money for remaining 1.5 face value, then combined value comes to Rs 313 compared to current price of Rs 284,” said Hemang Jani, head - advisory, Sharekhan.

“If existing partly-paid shareholders believe the Indiabulls Venture story, then they can sell their partly-paid shares and buy the same quantity of normal shares. They will stand to gain Rs 29 per share” he added.

To be sure, calculations do not consider discounted value of call options exercised now.

In case of Tata Steel, there is just 2.8 per cent (Rs 17) difference between ordinary shares of Tata Steel, which trade at Rs 608, and the combined value of partly-paid and final call, at Rs 625.

“Due to the narrow spread of 2.8 per cent, arbitration opportunity is not that profitable in Tata Steel. However, from the fundamental point of view, the Street is positive on Tata Steel with consensus price target of Rs 821, indicating an upside of 35 per cent,” said Sharekhan’s Jani.

Tata Steel offered two types of rights issues — fully-paid up shares at Rs 510 per share and partly-paid up shares at Rs 615 per share, but investors would pay Rs 154 per share (25 per cent) upfront, with the balance due within a year. The partly-paid up shares were listed separately and will remain traded until the call is given for the balance amount.

Indiabulls Venture partly-paid shares with face value of Rs 2 were issued at Rs 60 per share to eligible applicants subscribing to the rights issue. The remaining Rs 180 per share is payable in three tranches.