Mukesh Ambani’s Reliance Industries Ltd’s capital raising plan could see the oil-to-telecom conglomerate fetch up to Rs 50,000 crore from the proposed rights issue.
Mukesh Ambani’s Reliance Industries Ltd’s capital raising plan could see the oil-to-telecom conglomerate fetch up to Rs 50,000 crore from the proposed rights issue. India’s most valuable listed company, with a market capitalization of Rs 9.25 lakh crore, will consider a rights issue of equity shares in its board meeting scheduled for 30 April 2020. The move could help Reliance Industries Ltd (RIL) march towards realizing Ambani’s goal of making the company a zero-net-debt firm by March next year. Currently, RIL has a gross debt of over Rs 3 lakh crore and a net debt of Rs 1.5 lakh crore.
The move to raise capital during this time reflects the unflinching faith of promoters in the medium to long term prospects of various businesses, said Ajay Bodke, CEO, PMS Prabhudas Lilladher. “They are trying to reduce debt and raise equity when everyone is in a pessimistic mood. They are raising equity after so many years so it should be received well,” Sanjiv Bhasin told Financial Express Online. RIL will be a technology play in the long run, leaving its energy tag behind, he said, adding that he remains confident of the RIL-Saudi Aramco deal going through. Further, when asked about what could be the size of RIL’s proposed rights issue, Sanjiv Bhasin said: “They have a net debt 1.5 lakh crore and Rs 3 lakh crore is on the book. Maybe something in the range of Rs 50,000 crore could be in the offing.”
RIL, which is one of the most cash-rich companies in India with Rs 1.3 lakh crore cash in hand, is also one of the highest indebted firms. Charting its path towards the zero-net-debt goal, RIL last week announced a 10% stake sale in its telecommunications arm to Mark Zuckerberg’s Facebook for a whopping Rs 43,574 crore. However, RIL’s rights issue plan could help the firm become a zero-net-debt company by March next year, while the Facebook-Jio deal goes underway, and the Saudi Aramco deal waits for the light of the day.
“There are apprehensions that the Facebook investment may take time to fructify. The debt reduction plan could face delay, so to overcome that they (RIL) are probably thinking that they should come up with a rights issue probably of anything between $3-4 billion (up to Rs 30,000 crore),” Deepak Jasani, Head – Retail Research, told Financial Express Online. This would mean RIL issuing around 5 shares for every 100 held, under the rights issue. Among the other things that could delay RIL’s debt reduction plan, according to Deepak Jasani, include the slump in crude oil prices that have dented the oil and petrochemical business, Saudi Aramco deal probably getting reworked and equity markets underperforming for the coming quarters.
According to calculations done by Morgan Stanley on RIL’s rights issue, the global brokerage and research firm estimates the issue value to be $13.8 billion if new shares are issued to the tune of 12% of total equity and at a 5% discount to the current market price. The brokerage expects RIL to amass $2.3 billion if new shares issued are 2% of the total equity, at a 5% discount to the current market price.