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Reliance Industries (RIL) said Monday that its board would consider a proposal to issue shares to existing shareholders for rights, during its meeting on Thursday.
Analysts see the move as a gamble to help the company reach its zero net debt target, if other stake sale plans are delayed.
In a statement to EEB, RIL said the firm’s board will meet on Thursday to consider and approve its results for the March 2020 quarter and fiscal year 20, recommend dividends on equity shares and consider a proposal to issue shares. of capital to existing shareholders based on rights, as permitted by applicable law, subject to regulatory / statutory approvals, as necessary.
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“We did not expect a rights problem,” said one analyst. However, he added: “In the current global context and oil markets, the issue of rights should be viewed as a ‘Plan B’ if there is any delay in selling the stake to Aramco. This is the easiest way to achieve the zero net debt target. “
The analyst expects a 5 percent dilution through the rights. In other words, each shareholder will have the right to request five new shares for every 100 shares he owns. This will help RIL raise Rs 40,802 crore, assuming a 10 percent discount to the closing price on Monday.
In August 2019, the group’s president and CEO, Mukesh Ambani, told shareholders that RIL would be a zero net debt company by March 2021.
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RIL’s debt was Rs 3.06 trillion as of December 2019, compared to Rs 2.87 trillion in March 2019. Net debt, as of December 2019, was Rs 1.53 trillion. According to a note from Credit Suisse, RIL’s net debt to equity ratio, as of March 2020, is expected to be 0.52x.
Last week, RIL announced that Facebook would invest Rs 43.574 billion in Jio platforms for a 9.99 percent stake.
With a net debt of Rs 1.53 trillion, RIL still needs another Rs 1.1 trillion to meet its zero net debt target. Therefore, the 5 percent equity dilution may not help completely, and RIL may have to opt for a higher dilution.
Assuming a 10 percent discount, RIL will be able to obtain another Rs 81.6 billion from a rights issue, at the current market price, if it dilutes 10 percent of its assets. Details of the size of the problem are yet to be shared.
Capital expenditure for the December quarter of RIL at Rs 14,015 million rupees was three quarters of its cash profit which stood at Rs 18,511 million rupees, which gives an indication of the excess cash it has for the reduction of the debt.
As part of the debt reduction measure, RIL plans to sell 20 percent of its oil-to-chemicals (O2C) division to Saudi Aramco for $ 15 billion. With the collapse in oil prices, analysts have expressed concern about the timeline for completing the deal.
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Other plans include its Rs 25,215 million deal with the Brookfield group for the sale of 51 percent of its telecommunications tower assets, through an investment infrastructure trust (InvIT). RIL also plans to bring in a strategic investor in its InvIT fiber assets.
In December 2019, RIL and BP agreed to form a joint venture, in which BP will acquire a 49% stake in RIL’s fuel retail business for Rs 7 billion.
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