Reliance to consider rights issue, dividend on Thursday

Billionaire Mukesh Ambani's Reliance Industries Ltd (RIL) will on Thursday consider a rights issue - the first such issue in nearly three decades - as it steps up efforts to pare debt.

The Board of the country's largest company will meet on April 30 to consider and approve audited financial results of the firm for the quarter and year ended March 31 as also to recommend dividend, RIL said in a regulatory filing.

It would also "consider a proposal to issue equity shares to existing shareholders on Rights basis, as may be permitted under applicable law, subject to such regulatory/statutory approvals, as may be required," the company said without giving details.

The move comes within days of RIL agreeing to sell 9.99 per cent stake in its digital platform to Facebook Inc for USD 5.7 billion or Rs 43,574 crore.

Ambani had in August last year unveiled plans to cut debt to zero by 2021. As part of this plan, RIL has been seeking strategic partnerships across its businesses while targeting to deleverage the balance sheet.

At the end of December quarter, RIL had an outstanding debt of Rs 3,06,851 crore. It also had cash in hand of Rs 1,53,719 crore, bringing the net debt position to Rs 1,53,132 crore.

Analysts expect dilution of at least 5 per cent through the rights issue. In other words, each shareholder will be entitled to apply for five new shares for every 100 shares held. This will help RIL raise about Rs 40,000 crore, assuming some discount to the current trading price.

Typically, cash-strapped companies use rights issues to raise money when they really need it. In these rights offerings, companies grant shareholders the right, but not the obligation, to buy new shares at a discount to the current trading price.

The last time RIL tapped the public for funds was in 1991 when it had issued convertible debentures. The debentures were subsequently converted into equity shares at Rs 55 apiece.

As part of its balancesheet deleveraging plans, RIL is talking to Saudi Aramco for selling a fifth of its oil-to-chemicals business for an asking of USD 15 billion and has sold half of its fuel retail venture to BP Plc for Rs 7,000 crore and telecommunication tower business to Brookfield for Rs 25,200 crore.

But the crash in oil prices has created uncertainty over the timeline for the completion of the Aramco deal.

On August 12, 2019, RIL announced that it has signed a non-binding letter of intent to sell a 20 per cent stake in its oil-to-chemical (O2C) business to Saudi Aramco.

The O2C business, which has an enterprise valuation of USD 75 billion, includes RIL's refining and petrochemical divisions, and RIL's 51 per cent stake in its fuel marketing business. The company had sold a 49 per cent stake in its fuel marketing business in India to BP Plc for USD 1 billion.

In July 2019, RIL announced the sale of its telecommunications tower business which was already transferred to the investment infrastructure trust, InvIT, to Brookfield Asset Management Inc for Rs 25,200 crore.

Together, proceeds from these transactions will result in a reduction in RIL's net debt.