Mukesh Ambani led Reliance Industries Ltd (RIL) is set to kick-off India’s biggest-ever rights issue as the company returns to the public for raising funds after a gap of three decades.
Mukesh Ambani led Reliance Industries Ltd (RIL) is set to kick-off India’s biggest-ever rights issue as the company returns to the public for raising funds after a gap of three decades. RIL’s Rs 53,125 crore rights issue will open on May 20 and close on June 3 with the shares of the company being offered at Rs 1,2570 per share, a 14.8% discount from the current market price. RIL is offering one share for every 15 shares held by an investor, but should investors go in at this stage when the markets have been treading on choppy waters?
Dalal Street experts say investors should grab this opportunity with both hands keeping in mind the four deals that Reliance has just signed, bringing in Rs 67,000 crore for a 14.8% stake sold in bits and parts to different investors, the biggest being the Facebook deal. “In my opinion, this is the perfect opportunity for investors to participate in the medium-term growth story for the company, Ajay Bodke, CEO (PMS) Prabhudas Lilladher told Financial Express Online. RIL could use the money raised from the public and by selling a stake in Jio Platforms to bring its net debt to zero by the end of this financial year. “As indicated by the Chairman (Mukesh Ambani) in the last AGM, the firm is well on its way to become a zero-net-debt firm by March 2021, even the consumer-focused businesses I think will very soon start contribution up to 50% in the profits of the company,” Bodke said.
RIL’ s rights issue will look to raise Rs 53,125 crore in total but investors subscribing to the issue will only have to pay 25% of the amount at the time of subscription. The balance will be paid to the company in May and November next year. RIL’s board said that investors have to 25% of the amount on subscription, of the remaining amount Rs 314.25 will be paid in May next year and the remaining Rs 628.50 will be paid in November 2021.
Reliance might be facing the heat when it comes to its oil and petrochemical business as demand falters, but stake sale in Jio to foreign investors hints that RIL has other avenues to back the business. “Investors should subscribe, they (Reliance Industries) have a great idea, have great partners and good investors so there’s a huge opportunity for them to execute so I think with all these cash infusions they are very well capitalized to invest in the opportunity they see, so the outlook is very positive,” Nilesh Shah Envision MD & CEO Envision Capital told Financial Express Online.
Although equity markets have not recovered fully since their March lows, RIL has a different story with the stock surging 66% from its lows. “I think if as an investor you are looking to maintain or increase your equity exposure then this is a good opportunity unless you are afraid of equities now or want to sever ties with all equities then you should sell your original Reliance shares too,” Deepak Jasani, Head Retail Research, HDFC Securities told Financial Express Online. “Investors looking to maintain exposure in equities can look to subscribe to rights because this is one of the better mega-cap companies at this point in time,” he added.
At the end of March 2020, RIL’s outstanding debt stood at Rs 3.3 lakh crore while the net-debt was at Rs 1.6 lakh crore. In an effort to bring that down RIL has sold stakes in Jio platforms to Facebook, Silver Lakes, Visa, and General Atlantic bringing in Rs 67,194 crore.