PNB Housing shares correct 18% to adjust for 29:54 rights issue

Today is the ex-date and record date of the right issue of PNB housing finance.

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Shares of PNB Housing Finance slumped 18 percent intraday on April 5, which is the record date of rights issue.

“Today is the ex-date and record date of the right issue of PNB Housing Finance. When we compare the stock price to yesterday’s closing, it appears to be down more than 15 percent, but logically, it is trading after the rights issue has been adjusted,” said Santosh Meena, Head of Research at Swastika Investmart.

“When a company makes the rights issue, the share price is diluted and is likely to decline after the offering because there are more shares floating around in the market. The price is known as the theoretical ex-rights price and can be hypothetically determined using the TERP formula,” he said.

TERP is equal to rights share multiplied by offer price plus existing shares multiplied by previous close price divided by shares outstanding. Using this formula, TERP of PNB Housing Finance stands at 448.5 and the current price of the stock is Rs 470, which means the stock is trading higher by around 5 percent, Meena explained.

At 12:23pm, shares of the company were trading 4.6 percent higher at Rs 468.50 on the NSE.

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The board of PNB Housing Finance has approved a rights issue of around 9.06 crore shares at a price of Rs 275 per share to raise up to Rs 2,500 crore. The board approved the right entitlement ratio of 29:54 under which 29 equity shares will be offered for every 54 units held by an eligible equity shareholder on the record date.

“PNB Housing Finance issued rights in the ratio of 29 shares for every 54 shares held at Rs 275 per share. Today was ex-rights and hence investors who are holding these shares are selling then with the view to buying them back from subscribing to the rights. As a result of this, the stock is down,” said Vinit Bolinjkar, Head of Research at Ventura Securities.

The issue will open on April 13 and close on April 27. After this rights issue, Morgan Stanley sees the financier’s base-case profit rising 8-9 percent for FY24-25.