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Ola Electric shares jump 14% as SoftBank unit sells shares and rights entitlements in Rs 1,000 crore issue
Ola Electric's shares rose about 14% on Tuesday even as a SoftBank vehicle sold about 5.55 crore shares between January and October, cutting its stake to 11.7% from 12.9%, and sold rights entitlements in the Rs 999.74 crore rights issue, which closes on 30 October.
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4 min
Shares of Ola Electric Mobility rose about 14 per cent on Tuesday, 27 October, as investors reacted to news that a vehicle linked to SoftBank had been selling its holding in the company while the company is raising money through a rights issue. The rally came on a day of heavy interest in the stock, though no confirmed trading volume figure was found in the reports.
What SoftBank sold
SVF II Ostrich, an entity of SoftBank, sold about 5.55 crore shares of Ola Electric between 6 January and 22 October. That cut its holding from 12.9 per cent to 11.7 per cent, a fall of about 1.2 percentage points. The same vehicle also sold rights entitlements, which are the rights given to existing shareholders to buy new shares in a rights issue, and which can be sold to others. One report puts the number sold at 1.12 crore, about 25.9 per cent of its allocation, while another says 1.21 crore were sold on 22 and 23 October, or about 27.9 per cent of its estimated entitlement. The two reports disagree on the figures.
The rights issue
Ola Electric is raising up to Rs 999.74 crore by offering up to 37,02,72,665 new shares at Rs 27 each. The ratio is two new shares for every 25 shares held on the record date of 13 October. The issue opened on 22 October and closes on 30 October. The company is raising the money to repay debt and fund growth, according to reports.
When a company makes a rights issue, shareholders who do not want to put in more money can sell their entitlements, and others can buy them and use them to subscribe to the new shares. Selling the entitlement is a way for an existing investor to get some value without applying. It also means that a holder who sells has less ownership after the issue unless others buy the shares.
Motilal Oswal Financial Services and Calliope Capital Advisors have applied for a combined 2.39 crore shares after buying entitlements from entities in the promoter group, the reports say. The two firms' purchases show that institutional buyers are taking part in the issue.
One analyst said that buying at lower levels was due in part to the elevated price of crude oil, which makes electric vehicles more attractive, and to the rights issue itself. A lower issue price can bring in buyers who think that the shares will gain once the issue is complete.
The picture is not one-sided. Goldman Sachs has downgraded the stock to Sell. The company's market share in electric two-wheelers has been falling, from 7.6 per cent in August to 6.5 per cent in September, according to the reports, at a time when the whole electric two-wheeler market has grown. Competitors have been gaining, and the company faces pressure on sales and service.
A rights issue at Rs 27 is also a statement about where the shares have been trading. It is much lower than the price at which the company listed in August 2024, and investors who bought at higher levels have seen large losses. A jump of 14 per cent in a day is large, but it is from a low base, and a single day does not show a change in the business.
The first date is 30 October, when the issue closes. The company will then say how much of the issue was taken up, and how much of the unsubscribed part was bought by others. A strong subscription would reduce the worry about funding, while a weak one would raise it. The second is the monthly sales and market share figures for October, which should show whether the festive season has helped the company recover share.
For shareholders, the options in a rights issue are to apply for the new shares, to sell the entitlement or to do nothing and allow it to lapse, which is usually the worst choice since the entitlement has a value. Retail investors who are not sure should read the offer document and check the deadline, which is only three days away. An entitlement that is not used or sold by the closing date lapses, and the shareholder loses its value.
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