In a capital raise that will help it further deleverage its balance sheet after the $5.7-billion deal with Facebook, Reliance Industries (RIL) on Thursday said it would mop up Rs 53,125 crore from shareholders via a rights issue. The conglomerate’s effective debt at the end of 2019-20 is estimated at around Rs 1.5 lakh crore and it hopes to become debt-free in CY2020. RIL ended 2019-20 with a consolidated operating profit of Rs 1,02,280 crore.
RIL said it was looking to complete a capital raise of Rs 1.04 lakh crore by June 2020 with help from the rights issue, Facebook’s Rs 43,600 crore investment and the previous investment by BP PLc.
The company said, on Thursday the deal to sell a 20% stake in its oil-to-chemicals (O2C) business to Saudi Aramco was on track.
A stronger balance sheet will allay concerns at a time when the Indian economy is expected to contract following the disruption due to the outbreak of Covid-19 and consumer demand is espected to remain muted. Post the Facebook deal announcement on April 21, Moody’s had observed: We expect the transaction to reduce RIL’s consolidated net debt/EBITDA by 0.4x to well below 3.0x, the tolerance level for its Baa2 rating.
RIL’s promoters have said they would subscribe to both their quota of shares as also all of the unsubscribed portion. Shareholders will be entitled to 1 share for every 15 shares held at Rs 1,257 apiece.
The capital will come in handy as analysts expect RIL’s operating profits — especially from the petrochemicals and refining businesses –to be under pressure this year. The digital and telecom businesses, however, are expected to do well. Moody’s noted it expected the company’s ebitda to decline over the next 12 months but said the credit metrics may remain appropriate for its ratings if it successfully executes its announced transactions.
On 12 August 2019, RIL said it has signed a non-binding letter of intent to sell a 20% stake in its Oil to Chemical (O2C) business to Saudi Aramco. The O2C business, which has an enterprise valuation of $75 billion, includes RIL’s refining and petrochemical divisions, and RIL’s 51% stake in its fuel marketing business. RIL also announced that it has entered into a deal with BP Plc to sell a 49% stake in its fuel marketing business in India for $1 billion. Moody’s said the proceeds from these transactions will result in a $16 billion reduction in RIL’s net debt. RIL’s first rights issue in three decades, will see partly- paid shares with a face value of Rs 10, being issued, allowing shareholders to pay up over a period of time. While 25% must be paid on application, the balance will need to be paid in one or more calls.