Reliance Industries' (RIL's) biggest-ever rights issue of Rs 53,125 crore will open on May 20 for subscription of shareholders and close on June 3, the company said in a statement on Saturday.
Reliance Industries’ (RIL’s) biggest-ever rights issue of Rs 53,125 crore will open on May 20 for subscription of shareholders and close on June 3, the company said in a statement on Saturday. RIL had announced its rights issue in its April 30 board meet, with offer price of Rs 1,257 per share, at a ratio of 1:15. The company’s first rights issue in three decades will have subscribers pay 25% on application, with the rest to be submitted in subsequent calls.
The rights issue, along with stake sales in the company’s Jio platforms, paves the way for reduction of Rs 1.6 lakh crore in net debt, and is in line with company’s aim to have zero net debt by the end of 2020. The proceeds from rights issue will reduce RIL’s net debt by about $7.8 billion and is credit positive, said analysts at Moody’s.
In all, RIL would have raised Rs 113,722 crore when the rights issue closes, including the other global investments that have been announced over the last one month.
“Along with the previously announced asset sales to Facebook and BP (A1 negative), RIL expects to generate net proceeds of Rs 1.1 trillion ($14.6 billion), which will reduce its net debt by the same amount. The total net debt reduction from the completion of these transactions will lower RIL’s reported net debt by about 68%, and will be equivalent to 1.1x its reported ebitda of Rs 1 trillion for the fiscal year ended 31 March 2020,” analysts said.
According to analysts at Axis Capital, given the shift in RIL’s focus to consumer and technology businesses and the long run-way of growth, the rights issue provides an “excellent opportunity” for existing shareholders. “In a less digitalised (though high mobile penetration) economy like India, RIL is augmenting its consumer businesses growth with global tech major partnerships.
We believe FB (Facebook) deal is just a start and expect to see many such marquee deals happening in the next one-two years as this route provides much-needed capital (from strong cash-generating companies) and advanced technologies,” the analysts said in a recent report.
Together with the $5.8-billion infusion by Facebook, announced on April 21; $750 million by Silver Lake, announced on May 4; and Vista deal on May 8 taking the equity inflow into Jio Platforms to now $7.95 billion (Rs 60,500 crore), total equity sale rises to 13.45%.
With a potential fibre InvIT divestment and Aramco deal in second half of FY21, RIL can potentially achieve zero net debt, said analysts at Edelweiss Securities. Thanks to working capital management and lower cash taxes, the company generated positive free cash flows (FCF) of Rs 20,000 crore in FY20E.
Moreover, analysts at JP Morgan pointed out that RIL’s organic free cash flow generation for FY21 could be impacted and if the reported capex continues to be in the range of Rs 60,000-Rs 80,000 crore, it would be FCF-negative again in FY21E.
RIL reported weak numbers in the fourth quarter ended March 31, missing estimates. The company reported 37.2% fall in net profit after including exceptional items at Rs 6,546 crore. Revenues during the quarter declined 2.5% to Rs 1.51 lakh crore, primarily on account of 10.1% fall in refining and pethchem business revenues.