Reliance Plans To Float Rs 1000cr Preference Shares
Reliance Industries, the Rs 8,730 crore petrochemicals-to-textiles conglomerate, proposes to float a Rs 1000 crore preference share issue to fund expansion projects and aims to buy back five per cent of its fully diluted equity of Rs 999.59 crore at the market price within 15 months of the date for its extraordinary general meeting October 16.
In a series of major announcements yesterday, the company unfurled plans to introduce an employee stock option scheme, raise its authorised capital from Rs 1,000 crore to Rs 2,200 crore, and increase the perquisites and allowances for the five senior Ambani family directors on the board.
Shareholders will vote on these resolutions at the extraordinary general meeting to be held in Mumbai.
The proposed Rs 1,000 crore preference share issue is being made primarily to fund expansion projects like the ongoing Jamnagar petrochemical complex, the power and telecom projects and the oil exploration projects. The company is investing over Rs 4,500 crore in the Jamnagar petrochemical project, and around Rs 3,500 crore in oil exploration and development.
The buyback resolution is being moved as a similar resolution of 1994 could not be implemented due to lack of changes in the Companies Act. The new Companies Bill, currently in Parliament, allows buyback under certain conditions.
Reliance will thus join a number of companies like Procter & Gamble and Jindal Iron and Steel which have proposed similar moves. Unlike them, however, Reliance has not earmarked any specific amount. It has maintained that the buyback would be at market prices and funds for these would be met out of free reserves, securities premium account or out of proceeds of an issue specifically for this purpose.
The company has also stated that the shares once bought back would be cancelled immediately. A buyback of five per cent would reduce Reliances paid-up equity by Rs 4.9 crore shares out of its total shares of 99.59 crore.
The EGM is being convened primarily to approve the 1:1 bonus issue that was announced on June 26 in Mumbai.
The increase in the authorised capital follows the 1:1 bonus announcement which took the fully-diluted equity to over Rs 1,000 crore. The new authorised capital structure will be 120 crore equity shares of Rs 10 each and 10 crore preference shares of Rs 100 each.
Although the company has surplus cash of Rs 4,000 crore, analysts point out that RIL taps the market whenever liquidity is good.
They did that when the global debt markets were buoyant; they are doing it again now that the market for preference shares is good. The only problem is whether the preference share market here is big enough to absorb Rs 1,000 crore, said an analyst at an FII.
RIL has also decided to offer up to five per cent of its post-issue capital to employees either in the form of PCDs, equity-linked warrants or any other instrument.
* Plan to buy back 5% of equity at market price within 15 months of the EGM slated to be held on October 16; shares to dissolved immediately after buyback
* Move to raise authorised share capital from Rs 1,000 crore to Rs 2,200 crore
* Move of issue Rs 1,000 crore preference shares to fund expansion projects and introduce stock option for employees
* Move to raise perks & allowances of Ambani family directors
* Company to invest Rs 4,500 crore in Jamnagar project and about Rs 3,500 crore in oil exploration and development