Mukesh Ambani-led conglomerate Reliance Industries' (RIL) Rs 53,125 crore rights issue will open for subscription Wednesday. The rights issue which is part of steps to pare debt for RIL will be the largest share sale India has seen more than double the 2019 record held by Bharti Airtel and Vodafone Idea of around Rs 25,000 crore each.
Reliance has already raised Rs 67,194.75 crore by selling 14% stake in Jio Platforms to leading technology investors such as Facebook, Silver Lake, Vista Equity Partners and General Atlantic in less than four weeks. The stake sale is directed toward Reliance becoming a zero net-debt company by March 2021. RIL's net debt stood at Rs 1.53 trillion on 31 December.
Ajit Mishra, VP Research at Religare Broking said "We believe RIL's rights issue offered is a part of the company strategy that would help in deleveraging its balance sheet and achieve its target of reducing its net debt to zero by 2021. Further, we have a positive view on the company's growth prospects going ahead. Notably, the rights issue offer price (Rs 1,257) is trading at a discount of 14% (compared to the last closing price of Rs 1,459 on May 16, 2020) so one can apply for the rights issue."
Reliance Industries has hired over a dozen investment bankers and banks to manage the rights issue. The big names are JM Financial, Kotak Mahindra Capital, Axis Capital, BNP Paribas, Citigroup Global Markets, DSP Merrill Lynch, Goldman Sachs (India) , HSBC Securities, ICICI Securities, IDFC Securities, JP Morgan Chase, Morgan Stanley , HDFC Bank and the SBI.
The rights issue opens amid the coronavirus-induced lockdown which has led to high volatility in the equity market. Sensex which saw its biggest crash (3,934 points) ever on March 23 to end at 25,981.24, made partial recovery to 33,717 on April 20, 2020.
Since then, the index has lost 3,521 points to 30, 196 till date suffering high bouts of volatility. However, market volatility may not affect the prospects of RIL rights issue, considering the stock's strong fundamentals and company's leadership position in the industry.
"The issue offers a good opportunity to the investors planning to increase equity exposure in the company," said Deepak Jasani, Head of Retail Research, HDFC Securities. There are very few companies that show the strength to withstand disruptions and have value unlocking triggers in the current scenario, Jasani added.
"However, if one is afraid of equities now, then he can ignore the issue and also look to sell his original holdings in Reliance," Jasani noted.
Reliance Industries' rights issue which opens on May 20 will close on June 3. This is RIL's first rights issue in three decades. Before this, RIL had carried rights issue in 1991 when it issued convertible debentures. A company releases a rights issue to its existing shareholders to buy additional new shares of a company, thereby giving them right but not obligation to buy the company's shares.
The company announced rights issue on April 30, when its share price stood at Rs 1,452. Since then, it has lost 2.91%. On Tuesday, RIL shares closed Rs 32.50 or 2.26% lower at Rs 1,408.15 on BSE.
The rights issue is priced at Rs 1,257. In the rights issue, one equity share can be subscribed for every 15 equity shares held by eligible shareholders as on the record date.
The promoters of the company will subscribe to their full entitlement to the rights issue and also to all unsubscribed portions. RIL could raise nearly Rs 40,000 crore on the basis of April 27 closing price if it goes for 5 per cent equity dilution.
Investors who want to subscribe to additional shares can make the payments in three instalments-25% of the amount at the time of subscription, another 25% in May 2021 and the remaining 50% in November 2021.
The firm will use three-fourth of proceeds from the issue for repaying some of its borrowings, as per the offer document filed with exchanges. Of Rs 53,036.13 crore from the rights issue, "Rs 39,755.08 crore would go towards repayment/ prepayment of all or a portion of certain borrowings availed by company," the oil-to-telecom major said in its offer document. The remaining Rs 13,281.05 crore would be used for general corporate purposes, it added.
By Aseem Thapliyal