Reliance Petroleum

Price on 12/03/98: Rs 22.70

The scrip lost value thanks to the fourth option being offered on its triple option convertible bonds (TOCDs). It is making the non convertible debenture (NCD) portion also convertible by receiving three equity shares for each optionally convertible debenture held.

The TOCDs were issued at a face value of Rs 60 each with a convertible portion of Rs 20 which was converted into two shares of Rs 10 each.

In May 1997, the TOCD holders were issued two warrants which could be converted into two equity shares at a price of Rs 20 each.

Instead of cash payment for the warrants, RPL had also provided the option of exchanging the NCD portion of Rs 40 for two shares at a price of Rs 20 each. The market price of the TOCD is higher at Rs 48 so, the TOCD holders will prefer to make cash payment to convert the warrant at Rs 20 each as the prevailing price of the scrip is Rs 22.

This will bring in Rs 1448 crore to Reliance Petroleum but the companys debt equity ratio will go down to almost 0.45:1 from 0.9:1. Moreover, if the TOCD holders refrain from converting, the company will have to redeem Rs 80 per TOCD in three annual instalments through November 1999 to November 2001.

If they do not opt for the fourth option either, then the company may issue shares to the promoters to the extent of unconverted TOCD thus, increasing their stake from 39 per cent to 50 per cent.