RIL to up stake in Infocomm

Conversion of preference shares at Rs 32.

The Reliance Industries Ltd (RIL) today decided to convert its preference shares in Reliance Infocomm into fully paid-up equity shares at a conversion price of Rs 32 a share.

The face value of the Reliance Infocomm equity share was Re 1. After conversion, the Reliance Industries' shareholding in Reliance Infocomm will go up to 65.9 per cent from 45 per cent.

At Rs 32 a share, after the conversion of preference shares, valuation of Reliance Infocomm works out to be around Rs 22,528 crore.

At its first meeting after the announcement of the settlement between the Ambani brothers, the RIL board took the decision to convert the preference shares at a 56.25 per cent discount to the issue price of Rs 50 a share.

RIL had invested Rs 8,100 crore in Reliance Infocomm through subscription of 162 crore preference shares of Re 1 each at a premium of Rs 49 each. These preference shares were to earn 10 per cent annual dividend.

An industry source said conversion of preference shares at a discount was good for RIL shareholders as it was likely to get a better valuation at the time of listing.

"Reliance Infocomm shall now allot 287.76 crore of equity shares of face value of Re 1 each fully paid-up to Reliance Industries for a value of Rs 9,208.27 crore, which includes the accrued premium on preference shares," a media statement said.

The conversion aimed at consolidating Reliance Industries' holding in Reliance Infocomm.

Yesterday, Reliance Industries kicked off the consolidation process in Reliance Energy by announcing a proposal to acquire its wholly-owned subsidiary Reliance Industrial and Investment Holdings' 6.97 per cent stake in Reliance Energy.

According to a PTI report, RIL will acquire the shares at Rs 157.74 per share "" a huge discount to today's closing rate of Rs 625.15 of Reliance Energy on the BSE.

Post consolidation, Reliance Industries will transfer its shareholding in Reliance Infocomm and Reliance Energy to Anil Ambani. A special purpose vehicle was likely to be created to park these investments.

Anil Ambani had already floated an investment company, AAA Enterprises, to launch a 20 per open offer for Reliance Capital.

Y P Trivedi, an RIL director, told reporters after the board meeting that the demerger would be done expeditiously, adding that the court proceeding for demerger normally took a long time. He, however, declined to divulge any specific details of the board meeting.

Trivedi, who is also the chairman of the corporate governance committee, said the entire demerger would be implemented in a transparent way. "Every one concerned with it would be kept informed," he added.

The corporate governance committee, which also met today, was appointed to examine the relevant issues including statutory and legal requirements and suggest a scheme of reorganisation.

In this task, the committee can avail of professional and legal expertise to advise on preparing the reorganisation scheme.

When asked about various corporate issues raised by Anil Ambani before the announcement of the settlement, Trivedi said: "Nothing will be brushed under the carpet."

He added that nothing had been finalised on whether the demerger route would be through special purpose vehicle.

Drawing the curtains

• RIL had invested Rs 8,100 cr in Infocomm through 162-cr pref shares carrying a face value of Re 1 each
• In Nov/Dec, 2003, Mukesh proposed to convert the preference shares into equity shares at Rs 50 per share. Anil protested
• In April 2004, Mukesh raised the conversion price to Rs 96.20 per share
• Mukesh's own sweat equity was issued at Re 1 per share and he got 12% sweat equity
• In December 2004, he gave up his 12% shareholding in Infocomm